Dust Remains Unsettled

Update for June 14: PeopleSoft board backs J.D. Edwards deal; PSFT, J.D. Edwards sue Oracle; ORCL reports rise in profits

Mesa, AZ — June 13, 2003 — As this week closed out, the dust had yet to settle on the Oracle-PeopleSoft-J.D. Edwards mêlèe á trois, as PeopleSoft's board backed the company's purchase of J.D. Edwards, both PeopleSoft and J.D. Edwards filed suit against Oracle for disrupting their merger, and Oracle reported a significant year-on-year rise in net profits for its fourth quarter.

As iSource Business reported earlier this week (see article), Oracle jolted the enterprise resource planning (ERP) world last Friday with its $5.1 billion offer to buy PeopleSoft, scant days after PeopleSoft said it would buy J.D. Edwards in a $1.7 billion stock swap that would have moved PeopleSoft ahead of Oracle into the number two slot among enterprise application providers, behind SAP.

Subsequently, this past Monday Oracle filed paperwork with the U.S. Securities and Exchanges commission formalizing its bid for PeopleSoft. Oracle also sent a letter to PeopleSoft's board requesting a sit-down to discuss the deal.

In a news conference on Monday, J.D. Edwards defended its deal with PeopleSoft, saying that it made sense because of the two providers' complimentary, not overlapping, solution sets and their shared commitment to continuing support for each of their respective platforms. In addition, J.D. Edwards CEO Bob Dutkowsky suggested, based on statements from Oracle chief Larry Ellison, that were Oracle to be successful in its bid to take over PeopleSoft, it would stop developing PeopleSoft's solutions and essentially force PeopleSoft's customers to make a costly transition to Oracle's platform. Finally, Dutkowsky said that Oracle's bid could raise antitrust issues in the shrinking ERP market: a successful takeover by Oracle would leave two major players in the large-enterprise application market: Oracle and SAP, he argued.

PeopleSoft Rejects Offer

On Thursday, PeopleSoft's board of directors formally rejected Oracle's offer, repeating the assertion that such a deal would raise anti-trust issues and adding that it would have to go through a lengthy regulatory approval process, would create uncertainty for PeopleSoft's customers and hinder the company's performance, and would undervalue the company based on its financial performance.

"Oracle's offer seeks to enrich Oracle at the expense of PeopleSoft's stockholders, customers and employees," said PeopleSoft President and CEO Craig Conway in a company statement. "We believe that Oracle's proposed acquisition of PeopleSoft would stifle competition and limit customer choice. PeopleSoft remains steadfastly focused on providing our customers with superior products and services, and we will not let Oracle's tactics interfere with our business."

The board also reaffirmed its commitment to PeopleSoft's acquisition of J.D. Edwards, which the company said would "provide enhanced value for stockholders and significantly accelerate PeopleSoft's competitive position through the addition of J.D. Edwards' complementary suite of products and services."

In its own statement on Friday, Oracle spokesperson Jim Finn rejected PeopleSoft's board's rejection of Oracle's offer, saying: "Oracle is disappointed that PeopleSoft's board has put the self-interest of management over the best interests of PeopleSoft shareholders. In public statements, Mr. Conway has already unilaterally rejected Oracle's offer to acquire PeopleSoft — at any price and under any circumstances — even before the PeopleSoft board had met to consider it. PeopleSoft's board has also refused repeated requests to meet with Oracle to discuss our offer and they have refused to redeem the company's 'poison pill.'"

Contentious Turns Litigious

Meanwhile, on Thursday, J.D. Edwards filed suit in Colorado state court claiming that Oracle had "tortiously interfered" with its proposed merger with PeopleSoft. The suit seeks $1.7 billion in compensatory damages and an unspecified amount in punitive damages.

J.D. Edwards is also filing suit in California state court against Oracle and two of its executives. The California suit alleges that Oracle, Ellison and Chuck Phillips, an executive vice president at Oracle, engaged in "wrongful conduct and unfair business practices." This suit seeks an injunction that enjoins Oracle from proceeding with its tender offer for PeopleSoft.

"Oracle's sole aim is to disrupt a merger that will create value for the key stakeholders of J.D. Edwards and PeopleSoft," said Dutkowsky in a company statement. "Oracle's unsolicited offer for PeopleSoft will only destroy value for our companies' shareholders, customers and employees and the technology community overall. We will not sit by idly while Oracle pursues this arrogant, unlawful and destructive course of action."

In Oracle's statement on Thursday regarding the J.D. Edwards suit, Oracle spokesperson Jim Finn rejected J.D. Edwards' allegations. "Clearly PeopleSoft and JD Edwards prefer to fight in the courts than let shareholders decide," Finn said in the statement, adding, "We believe that this case has no merit whatsoever."

Then, on Friday, PeopleSoft announced that it has sued Oracle over what it characterized as "a sham tender offer aimed at destroying PeopleSoft's business." The complaint, filed in Alameda County Superior Court in California, alleges that Oracle has engaged in "unfair business practices, trade libel and tortious interference with PeopleSoft's customer relationships."

PeopleSoft asserts in the suit that Oracle's true intent in making its tender offer was to undercut PeopleSoft's business operations by disparaging PeopleSoft's products, services and future prospects, undermine PeopleSoft's viability by creating uncertainty and doubt in the minds of PeopleSoft's customers and prospective customers, and interfere with PeopleSoft's plan to merge with J. D. Edwards.

In addition, PeopleSoft alleges that Oracle's accompanying media campaign "grossly misleads the market concerning Oracle's ability to provide continuing support to existing PeopleSoft customers, and fails to disclose the substantial obstacles and costs facing PeopleSoft customers that would need to migrate to an Oracle platform.

"The misrepresentations by Oracle in various press releases, conference calls and other communications are alleged to be a part of a scheme to freeze customer purchase decisions and to adversely affect PeopleSoft's end-of-quarter sales," PeopleSoft said in a statement.

"By making an offer with the acknowledged intent of eliminating PeopleSoft's business, Oracle seeks to disrupt PeopleSoft's efforts to complete new sales, thus, effectively damaging PeopleSoft's business even if Oracle never buys a single share of PeopleSoft stock," said Conway in his company's statement on the suit.

Conway also reaffirmed PeopleSoft's plan to move forward on its merger with J.D. Edwards. "We intend to compete vigorously in the marketplace and complete the merger with J.D. Edwards despite Oracle's unlawful efforts to destroy competition," Conway concluded.

The lawsuit seeks an injunction barring Oracle from proceeding with its tender offer as the only way that PeopleSoft's business can be protected.

Responding to PeopleSoft's suit, Oracle's Finn said, "PeopleSoft seems to have revived its on-again, off-again litigation strategy," referring to earlier reports that PeopleSoft had considered, and then dropped, the idea of filing suit against Oracle.

Further, criticizing what Oracle characterized as PeopleSoft's "entrenchment tactics," Finn added, "This matter must be decided by PeopleSoft shareholders and not by frivolous litigation." Any action by the PeopleSoft board "to take the vote away from PeopleSoft shareholders and to further entrench themselves," Finn concluded, "would only compound their abuse of fiduciary duty."

Needless to say, Oracle was standing by its initial offer to buy PeopleSoft for $16 per share, although PeopleSoft's stock finished Friday's trading at $16.92.

Analysts' Take

In a research note on the providers' ongoing brawl, Jim Shepherd and Bruce Richardson, both vice presidents with technology consultancy AMR Research, suggested that the antitrust arguments might not hold water, given that the ERP market remains "highly fragmented," with one potential major player hovering at the edges — Microsoft — and a host of smaller vendors, including — besides J.D. Edwards — such players as QAD, Lawson, Baan (itself recently bought by SSA Global Technologies), Intentia and IFS.

"PeopleSoft needs to take the potential benefits of a PeopleSoft-J.D. Edwards combination to its shareholders to counter Oracle," the analysts write. Specifically, they assert that the deal would give PeopleSoft a much stronger hand in selling into the manufacturing market, while J.D. Edwards would gain strength in the services industries. Shepherd and Bruce Richardson conclude that, ultimately, the PeopleSoft-J.D. Edwards combination would offer greater value to PeopleSoft's shareholders than the $16 per share that Oracle is offering, although clearly opinions differ on that issue.

Oracle Profits Rise

Finally, adding one more factor for those shareholders to consider over the weekend, Oracle closed the week by reporting significantly improved net income for its fourth quarter, despite barely a nudge upwards in its total sales figures.

The company said that it had earned net income of $858 million in the fourth quarter, a 31 percent increase over the year-ago period. Fourth quarter sales came in at $2.83 billion, just 2 percent over the figure for the same period of last year. Revenue from new software licenses rose just 1 percent, to $1.2 billion.

Once again, stay tuned....
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