Oracle May Drop Its PeopleSoft Bid Lower

Catz cited PeopleSoft's 2004 performance as the chief reason for what she said is likely to be a decline from the current $21-a-share offering price.

"The direction is down significantly," she said in response to questions from her own lawyers in a Delaware courtroom. Catz's testimony came at the start of the second week of trial of Oracle's legal challenge to PeopleSoft's antitakeover defenses, as the 16-month long acquisition attempt continues.

A lawyer for PeopleSoft suggested Catz's statements and those from other Oracle executives were part of a continuing effort to use the trial as a platform to drive the deal price down.

Oracle chief executive Lawrence Ellison took advantage of his turn on the stand last week to warn PeopleSoft shareholders that the offer on the table was likely to be replaced with a lower number.

Under cross-examination by PeopleSoft's attorney, Catz admitted that, prior to the trial, Oracle had made no public statements about the dimensions of a drop in the offering price.

However, in a recent press release, Oracle said it was taking into account specific liabilities that PeopleSoft was adding in evaluating the deal, Catz said.

Catz said new financial models are being run. The last models, done in January, expected PeopleSoft to earn about 85 cents a share in 2004.

At that time, the offering price was $26 per share. No new models were done when Oracle dropped its offer to $21 per share in May, according to Catz.

So far, she said, her sense is that PeopleSoft's 2004 earnings will be "60, 59, 61" cents a share. PeopleSoft seems to be doing "quite poorly" in 2004, she said, and is no longer issuing guidance to let analysts know what earnings are projected.

Among the specifics figuring into the new deal calculations are liabilities attached to a special customer program that is one of the PeopleSoft defenses at issue in the lawsuit, she said.

The special money-back guarantee program that PeopleSoft put in place to protect customers from takeover-related liability is not an issue for Oracle, the company has said.

Almost from the start of the acquisition attempt, Oracle has said it will support PeopleSoft products and it is determined to keep PeopleSoft's customers happy.

But Oracle's position is that the customer program diminishes PeopleSoft's value in the deal.

"I still haven't got a sense ... what my liability's going to be," Catz said Monday.

PeopleSoft has put on evidence it says showed Oracle has pursued a strategy of capitalizing on the takeover battle in an effort to keep the target's share price down.

But presentations to Oracle's board and assessments by investment bankers contain no references to PeopleSoft as a distressed company, said PeopleSoft attorney Matthew Fischer.

He showed Catz an Oracle analysis in April 2003 that concluded that a $23.76 per share offer for PeopleSoft would still be accretive.

She said the analysis was "just a discussion point."

Fischer also cited favorable reports about PeopleSoft from former Morgan Stanley technology analyst Charles Phillips.

Phillips, who is now Catz's peer as co-president of Oracle, wrote that PeopleSoft was positioned well for long-term competition, the lawyer said.

Catz said Monday that internal PeopleSoft documents she saw during the trial of the Department of Justice's failed antitrust challenge to the proposed merger fed her opinion that PeopleSoft is weak.

She cited documents that show PeopleSoft developers fear they are no longer able to compete.

"PeopleSoft as a standalone entity is really not viable longer term," Catz said.

Shares of PeopleSoft, based in Pleasanton, Calif., traded Monday afternoon at $21.53, down 42 cents, or almost 2 percent, on the Nasdaq Stock Market.

Redwood Shores, Calif.-based Oracle shares traded at $12.21, up 4 cents, also on the Nasdaq.

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