Peoplesoft: Oracle bid intended only to disrupt

Oracle's hostile bid to acquire PeopleSoft cost PeopleSoft more than US$170 million last quarter in delayed or cancelled contracts with two major public-sector potential customers, according to a pending PeopleSoft lawsuit against Oracle.

Recently unsealed portions of the complaint, filed in June in Alameda County Superior Court, use quotes from internal Oracle e-mail to bolster an array of allegations against Oracle, including that it has used fraud, libel and false advertising in its campaign to buy PeopleSoft through a $7.3 billion tender offer to PeopleSoft's shareholders. The recurring theme of PeopleSoft's complaint is its belief that Oracle's bid is insincere and intended only to disrupt PeopleSoft's business and spook its customers.

That effort is paying off, PeopleSoft said. It cites in its complaint several cases of unnamed customers contacting the company soon after Oracle's June 6 announcement of its takeover campaign to end or delay talks about software purchases. One delayed deal is identified by name: Los Angeles County suspended discussions of a $100 million software project, citing the uncertainty created by Oracle's actions.

"A number of PeopleSoft's customers worldwide put transactions with PeopleSoft on hold until the Oracle cloud lifts, while others chose to proceed with competitors or attempt to back out of executed contracts with PeopleSoft. Oracle has now made it clear it intends to keep that cloud intact well into 2004, and repeatedly makes the ominous claim that 'time is on our side,'" PeopleSoft said in its legal filing.

Oracle's bid offers PeopleSoft shareholders $19.50 in cash per share. Initially set to expire in July, the offer's deadline has been extended by Oracle several times. It is now valid through Sept. 19.

As of Aug. 8, around 10 percent of PeopleSoft shares had been tendered into Oracle's offer. Beyond the vehement objections of PeopleSoft's directors, Oracle faces several steep obstacles in seeking to complete the buyout, including a PeopleSoft "poison pill" that would allow PeopleSoft to inflate the number of shares owned by its stockholders and make a takeover prohibitively expensive. Oracle has a lawsuit pending in Delaware's Chancery Court challenging the legality of the poison pill.

It also faces potential challenges from state and federal authorities. The U.S. Department of Justice is conducting a review, expected to last several more months, of the proposed transaction's antitrust implications. Connecticut's attorney general has already launched a lawsuit against Oracle seeking to block any PeopleSoft buyout, on anticompetitive grounds.

PeopleSoft surprised Wall Street analysts last quarter by meeting revenue and earnings targets set before Oracle launched its takeover bid. PeopleSoft Chief Executive Officer Craig Conway said at the time that the results reflected PeopleSoft's operational strength, and predicted that Oracle's bid would ultimately damage Oracle more than PeopleSoft.

But in the lawsuit, PeopleSoft repeatedly maintains that Oracle's actions are disrupting its customer relationship and adversely affecting its business. Unsealed sections of the suit include quotes from internal Oracle e-mail that PeopleSoft says demonstrate that Oracle's real goal is to scare PeopleSoft's customers and create uncertainty in the market. Rather than targeting its takeover pitch at PeopleSoft's shareholders, Oracle has frequently contacted PeopleSoft's customers, both directly and through the media, to warn them about the deal's potential effects, PeopleSoft said.

PeopleSoft is asking the court to block Oracle's tender offer and restrict the company from discussing the offer or PeopleSoft's business and financial conditions with any PeopleSoft customers. It also seeks compensatory and punitive damages payments.

Hearings on the suit are expected to begin next month. The lawsuit now incorporates two other lawsuits filed by J.D. Edwards & Co. against Oracle, charging the company with illegally interfering with its planned acquisition by PeopleSoft. After PeopleSoft this month completed that acquisition, it decided to roll J.D. Edwards' legal actions against Oracle into its own, according to a PeopleSoft spokesman.

The legal tussling between Oracle and PeopleSoft hasn't yet slowed Oracle in its outreach to PeopleSoft customers. The company announced Wednesday its second online "town hall" session for PeopleSoft, scheduled for Sept. 3. Oracle Vice Presidents Mike Rocha and Chuck Phillips, a key architect of the PeopleSoft bid, will talk about Oracle's planned enhancements to PeopleSoft's customer support, Oracle said.

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