PeopleSoft Succumbs to Oracle
By TSC Staff
12/13/2004 6:56 AM EST
Updated from 6:29 a.m. EST
In the end, "best and final" was neither.
Oracle (ORCL:Nasdaq - commentary - research) on Monday announced a definitive agreement to acquire PeopleSoft (PSFT:Nasdaq - commentary - research) for $10.3 billion, ending one of the bitterest takeover sagas in the history of the software industry.
Oracle will pay $26.50 for each PeopleSoft share, adding $2.50 a share to a price it previously called its best and final and representing a 10.6% premium to PeopleSoft's Friday close of $23.95. The transaction, which was approved by both company's boards, ends 17 months of wrangling that saw the resignation of PeopleSoft CEO Craig Conway and the courtroom reversal of a government effort to block the takeover on antitrust grounds.
Shares of both companies were higher in premarket trading, with PeopleSoft adding $2.40, or 10.2%, to $26.49, and Oracle jumping 51 cents, or 6.6%, to $14.15.
Oracle, which earlier Monday said second-quarter earnings rose 32% to $815 million, or 16 cents a share, believes the PeopleSoft acquisition will add a penny a share to its fourth-quarter earnings and 2 cents a share to quarterly earnings in its fiscal 2006.
While Oracle's triumph is a feather in the cap of CEO Larry Ellison, it opens a number of urgent new questions about PeopleSoft, whose marketing and administration software is the gold standard among large U.S. corporations. First among them is the loyalty of PeopleSoft's existing customers, whose willingness to pony up a rich stream of royalty and support revenue helped prompt Oracle's first takeover bid in June 2003.
Speaking at a customer convention last week, Ellison repeated a pledge "to oversupport PeopleSoft customers" during the transition in an effort to prevent defections to rivals like Germany's SAP (SAP:NYSE - commentary - research).
For PeopleSoft, the writing has been on the wall since Nov. 21, when about 60% of its shareholders tendered into Oracle's then-$9 billion hostile offer. Publicly, the company had hung its hopes on both a traditional "poison-pill" antitakeover defense and an unconventional customer rebate program designed to make a buyout prohibitively expensive.
Both strategies were the subject of litigation that might have dragged on into the spring. Meanwhile, Oracle last month named a slate of four candidates for PeopleSoft's board, the first step in an end-around proxy battle that could have resulted in the ouster of PeopleSoft's directors at an upcoming shareholders' meeting. PeopleSoft also faced a revolt among owners who had previously agreed to settle a suit that alleged the company was too vigorous in its resistance to the deal, breaching its fiduciary duty.
Under the new agreement, Oracle's tender offer has been extended to Dec. 28. About 120.6 million PeopleSoft shares are currently tendered into the offer.
"This merger works because we will have more customers, which increases our ability to invest more in applications development and support," Oracle said in a statement. "We intend to enhance PeopleSoft 8 and develop a PeopleSoft 9 and enhance a JD Edwards 5 and develop a JD Edwards 6. We intend to immediately extend and improve support for existing JD Edwards and PeopleSoft customers worldwide."
Oracle's second-quarter earnings of 16 cents a share beat the Thomson First Call estimate by 2 cents a share. The company reported a 10% jump in overall revenue to $2.76 billion, beating forecasts of $2.64 billion.
In the quarter, Oracle said software license revenue rose 13% to $2.22 billion, while services revenue rose 1% to $533 million. New software license sales rose 14% to $971 million, including a 57% increase in new application sales. Second-quarter operating margin added 4 percentage points from a year ago to 41%. |
