ANALYSIS
Inside Oracle's Revised PeopleSoft Bid

Like the Trojan War, the battle between Oracle Corp. (Nasdaq: ORCL) and PeopleSoft, Inc. has languished for a while but soon may reach epic proportions. In this tale, however, the weapons are hostile takeover offers and the soldiers are chief financial officers, technical experts and attorneys.

It's not clear yet which side will win, as the U.S. Department of Justice is (DoJ) standing on the sidelines, weighing the fortunes of both sides in its hands like the Greek god Zeus.

In the latest development in this ongoing saga, Oracle announced Friday that it has lowered its previous cash tender offer to purchase all of the outstanding shares of PeopleSoft from US$26 per share to $21 per share. The move decreases the hostile takeover bid from approximately $9.4 billion to $7.7 billion.

Changed Environment

According to Oracle, the revised offer reflects changes in market conditions and in PeopleSoft's market valuation. The new bid still represents a premium of 21 percent over PeopleSoft's closing price of $17.30 last Friday -- a higher premium than Oracle's previous offer.

Oracle also said it is extending its previously announced tender offer for all of the common stock shares of PeopleSoft to midnight Eastern Daylight Time on July 16, 2004.

Although PeopleSoft and Oracle shares both fell Monday -- with PeopleSoft shares down about 4 percent and Oracle shares down about 2 percent -- the market as a whole lost about 2 percent of its value, so it is unclear whether or not the announcement had any effect on the companies' stock prices. Analysts blamed the war in Iraq and higher oil prices for the overall market decline.

On the Docket

In an official written statement responding to Oracle's lowered bid, PeopleSoft noted that its board has reviewed Oracle's three previous unsolicited offers, each time unanimously concluding that the offer undervalued PeopleSoft and recommending that PeopleSoft stockholders reject the offer.

The company stated further that because of significant antitrust obstacles in both the United States and Europe, it does not believe Oracle's bid can be consummated regardless of price. However, the offer is on the PeopleSoft board's meeting docket for evaluation later this month.

Not Anticompetitive, Says Oracle

Since launching its bid for PeopleSoft in June 2003, Oracle has maintained that the move is not anticompetitive. The company has pointed to Microsoft's (Nasdaq: MSFT) recent entry into the small and mid-market enterprise resource planning (ERP) sector as evidence that the market is flexible and changing.

Despite these arguments, several government agencies, including the European Commission and many U.S. state attorneys general, are looking at the deal.

U.S. federal antitrust regulators already have argued that the $30 billion enterprise software market, which includes enterprise resource planning, customer relationship management and supply chain management software, has too few competitors to adjust to the Oracle-PeopleSoft merger.

In February of this year, the DoJ tipped the scales against Oracle, saying it sees the deal as anticompetitive and will block the transaction to protect the competition.

For its part, Oracle believes the DOJ's response was merely the result of an aggressive lobbying campaign by PeopleSoft management and that the takeover will benefit both companies' shareholders and customers alike.

Intentionally Damaging?

In the past, PeopleSoft has accused Oracle of trying to damage its business. In its latest statement, the company said it sees the newest offer as simply one more attempt to diminish its value.

The announcement of the lowered bid precedes PeopleSoft's premier customer event for senior executives: its annual Leadership Conference scheduled for May 18th and 19th in Las Vegas. Obviously, PeopleSoft staff will have to address Oracle's newest offer both officially and unofficially during that gathering.

The future does not look settled, either. On June 7th, Oracle expects to defend its takeover bid in federal court in San Francisco. Currently, both companies are pulling together witness lists for the presentations.

June's initial presentations will set the stage for the next chapter of this saga. It remains to be seen whether one side will triumph quickly or if the legal warriors will inch back and forth, fighting to gain a decisive win.