Oracle: Not Afraid of Poison Pill or Proxy Fight

With the Justice Department currently reviewing the case, Oracle says it still has a few things up its sleeve still that will ensure it will take over PeopleSoft.


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Posted September 11, 2003

Michael Singer

SAN FRANCISCO -- Oracle said a federal probe into its $7.3 billion hostile takeover bid for PeopleSoft seems to be the only thing standing in the way of its goal.

In a briefing with the press, Oracle Executive Vice President Chuck Phillips said approval from the U.S. Department of Justice is almost certain and subsequent stopgap measures to clearing the deal are almost moot.

"The next milestone is regulatory clearance from the DOJ, which is currently in the pre-notification process," Phillips said at the company's OracleWorld 2003 conference here. "We are more optimistic now and believe we have a good case as is. Nothing else is being brought to the table at this point. Time is on our side."

Phillips also said Oracle will remain firm on its offer and not raise its bid price for PeopleSoft suggesting that the company would not want to bid against itself.

If the proposal does clear regulatory hurdles, it will still be subjected to a financial provision in PeopleSoft's bylines against hostile takeovers. Known in financial circles as a poison pill, the clause is designed to protect people who own company stock from losing their shirt. If the pill is eliminated, shareholders could wage a proxy war and possibly pit PeopleSoft board members against each other. Phillips said neither was likely to happen.

"It is very rare that a poison pill stops a deal," Phillips said. "Mostly what it does is buy you time to renegotiate prices. The likely scenario is that shareholders will ignore it in favor of completing the deal. Shareholders are not nearly as emotional as they once were but they can't do anything right now because of the poison pill. As for the proxy fight, we have a few things up our sleeve."

Outside of the DOJ's investigation, 38 state attorneys general are also looking into the legal issues surrounding the case. Connecticut officials have filed an antitrust lawsuit against Oracle, alleging that its acquisition of PeopleSoft would interfere with the state's current computer system conversion plan.

Analysts are split over the feasibility of Oracle's proposal with most tending to say that Ellison will get his way.

But Loomis Sayles and Co. financial analyst Tony Ursillo told internetnews.com he's skeptical about the deal being completed.

"In a nutshell there are too many groups of constituents that are against the merger," Ursillo said. "Customers, competitiors, state AG's are all coming out against Oracle. And as we saw with the Microsoft case, if you have enough people against a company's business practices, the Justice department tends to address those concerns."

Ursillo said his secondary concern is that Oracle will most certainly have to up its price for PeopleSoft now that the company has begun putting its balance sheet to work with a recently announced buyback and

As for customer concerns over integration and customer support, Ursillo says shareholders in the know are unfazed.

"If you take out a fierce competitor and eat up the maintenance revenue, I think that overwhelms the integration risk," Ursillo said.

Phillips said it is unlikely that the company would hold a third town-hall meeting to address concerns by PeopleSoft investors.

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