Here is another article about PSFT's poison pill tactic in this week's Barrons. If I were a PSFT shareholder, I probably wouldn't vote for the Oracle takeover, but nevertheless I would be very incensed over Conway's self serving poison pill. It is just another example of insiders in a bay area tech company treating outside shareholders like crap imho.
online.wsj.com
Barrons, MONDAY, NOVEMBER 24, 2003
PeopleSoft: a Wolf in Sheep's Clothing?
IS ALL FAIR IN LOVE, WAR AND CORPORATE takeover battles, especially when the aggressor has a thing for samurai swords?
PeopleSoft has definitely been billed as the underdog versus the evil empire of Oracle and its CEO, Larry Ellison, an avid fan of ancient Japanese warfare. No doubt, thousands of PeopleSoft jobs will disappear if Ellison succeeds in his hostile bid for the Pleasanton, Calif., enterprise-application software concern run by his former employee Craig Conway. And corporations will have one fewer vendor from which to buy their software. (Make that two fewer if you include J.D. Edwards, which already has been consumed by PeopleSoft.)
Both Ellison and Conway have been pulling few punches in this most unfriendly of Silicon Valley scrapes, but one has to wonder whether Conway is running roughshod over investors' rights as he tries to thwart the wolf at his door. In fact, PeopleSoft's message to its shareholders increasingly sounds like "Eat your vegetables; we know what's good for you."
"We've rejected the offer. It's not in the best interest of shareholders," says PeopleSoft spokesman Steve Swasey. "We have a better plan for our shareholders, [and] that has always been the board's stance," he adds.
PeopleSoft's plan seems to be to drag out the process, hoping this will make the deal unaffordable, or will give antitrust regulators enough time to scuttle it. Yet in the wake of Sarbanes-Oxley reforms, PeopleSoft seems to be thumbing its nose at regulators, shareholders and analysts in the name of defeating Conway's nemesis, whom he has been quoted as comparing to Genghis Khan.
"PeopleSoft is doing everything they can to make sure this unsolicited offer fails at the expense of shareholders," asserts Cameron Steele, a software analyst for RBC Capital Markets.
Says Swasey of such criticism: "That's a minority viewpoint."
Since the June 6 bid, PeopleSoft has embarked on a de facto poison pill defense without the approval of shareholders, through a clever and controversial "customer assurance plan," which guarantees clients refunds of as much as five times the cost of their software licenses if Oracle were to acquire PeopleSoft and fail to service and develop its products.
This has encouraged customers to load up on software before this "special short-term offer" disappears. This, in turn, has puffed up revenues. PeopleSoft is booking the revenue and saddling Oracle, or any other potential acquirer, with the inflated liability. This alone should merit a lower bid from a potential acquirer, which is not necessarily in shareholders' best interests, says RBC's Steele. "It's a hidden liability, not just for Oracle, but for anybody trying to buy the company," Steele says.
For its part, Oracle contends that a recent SEC filing by PeopleSoft indicates that as much as $155.9 million in licensed revenue reported in its third quarter should not be recognized. The reason: PeopleSoft changed the trigger mechanism that determines when the refunds could kick in.
Originally, they would kick in only if the company were acquired. This made sense. If it were taken over, PeopleSoft would shed the liability because it would no longer exist.
However, in an Oct. 27 filing, the company amended that policy to state that the mere election of a new board could trigger the guarantees. This meant that PeopleSoft itself could be on the hook for them, since a new board could be put in place without any takeover occurring. If so, most accountants wouldn't book those revenues until the contingency was removed.
PeopleSoft apparently realized this and so filed another amendment, on Nov. 17, that essentially retracted the change. "It was an administrative error," Swasey says of the Oct. 27 filing.
PeopleSoft would have had a disaster if it couldn't book some of that new license revenue, which has helped it beat "conservative" Wall Street estimates the past two quarters.
There's also another issue.
PeopleSoft has declined to separately disclose the financial performance of the former J.D. Edwards unit for the past two quarters, making it difficult for analysts to determine the new operation's profitability and growth. "This is how they are gaming the system. Plus, they are giving extremely low estimate guidance," Steele says.
In fact, the company's license revenue growth has declined over the past three quarters, a fact that PeopleSoft doesn't dispute. In addition to other recent maneuvers, it opted to change the filing date for candidates that want to run for election to its board to 120 days prior to its annual meeting from the previous 20 days. Many analysts contend that Oracle is likely to contest this and field an opposing slate anyway.
Lastly, CEO Conway has executed options and sold stock totaling more than $6 million since Oct. 30. Is that also a move that is "good for shareholders"? Says Swasey: "He has a right to sell shares he owns like everyone else." |
