PeopleSoft Blames Oracle for Share Price Free Fall

Embattled enterprise-application vendor PeopleSoft predicted Wednesday that its second-quarter 2004 earnings would not meet expectations. This news caused the company’s share price to drop to a 52-week low of US$15.39 in Wednesday morning trading. The stock has since edged up to $16.58 in midday trading.

PeopleSoft announced that its revenues likely will total between $655 million to $665 million for the quarter ending June 30th. The company expects pro forma earnings per share to range between $0.13 and $0.15.

However, the company noted that so-called “Oracle Costs” would take away $0.02 from its Generally Accepted Accounting Practices, or GAAP, earnings. This, along with restructuring and other costs, translates into $0.05 GAAP earnings per share for the company.

PeopleSoft plans to announce its final second-quarter results at the end of this month.

Blame Oracle

PeopleSoft CEO Craig Conway accused rival Oracle of creating an atmosphere that adversely affected PeopleSoft’s business and its second-quarter earnings.

“Although we have been able to meet or exceed our financial projections since Oracle launched their hostile tender offer, the extensive publicity of the antitrust trial during the last month of our quarter was impossible to completely overcome,” Conway said.

PeopleSoft spokesperson Steve Swasey told CRM Buyer that, while PeopleSoft does not comment on its share price, he would say that for the last 13 months, Oracle has disrupted and damaged PeopleSoft’s business. Swasey also said that the impact has been especially great since the Oracle’s antitrust trial began on June 1st.

Oracle declined comment to CRM Buyer on this story. The company currently is offering $21 per share, or approximately $7.7 billion to purchase PeopleSoft.

Falling off the Tightrope

Forrester vice president and CRM analyst Erin Kinikin described PeopleSoft as being on a very narrow tightrope since Oracle first made its takeover offer.

“To prove [it] can survive as an independent company, PeopleSoft has to make its numbers,” Kinikin told CRM Buyer. “Any time PeopleSoft preannounces lower earnings, people are going to wonder if [it is] falling off the tightrope.”

Kinikin said that she has been hearing increasing questions from clients about PeopleSoft’s viability. “The antitrust trial is definitely making PeopleSoft customers and prospects nervous,” she added.

Plenty of Competition

When CRM Buyer asked Yankee Group senior analyst Sheryl Kingstone about the dip in PeopleSoft’s share price, she replied: “See? They should have let Oracle acquire them!”

For her part, Kingstone does not agree with the U.S. Justice Department’s stance that the merger between Oracle and PeopleSoft would kill competition in the enterprise-application space.

“In essence, there is plenty of competition,” Kingstone said, adding that a long-term combination of the two companies makes sense.

According to Kingstone, it makes more sense for Oracle and PeopleSoft to come at the market from a position of strength to compete more effectively against enterprise-application rivals like SAP, Microsoft and IBM.

Back in February, “when Oracle offered a stock price of $26, PeopleSoft’s board should have jumped on it,” Kingstone said. At that point, the deal was worth about $9.4 billion, $1.7 billion more than Oracle’s current offer.

On May 14th, Oracle CFO Jeff Henley said that his company revised its offer down to $21 per share, a 21 percent premium of PeopleSoft’s share price at the time.

“That’s a higher premium than our previous offer was on the date made, calculated on both a single day and 30-day moving average basis,” Henley said at the time. “I believe this deal will benefit stockholders of both companies.”

JD Edwards Merger Not a Big Factor

When asked whether PeopleSoft’s merger with J.D. Edwards may have played a part in the combined companies’ current share price, Kinikin, for her part, said that the merger actually has gone better than expected.

“PeopleSoft has picked up J.D. Edwards’s vertical industry focus, and J.D. Edwards has a little more urgency and marketing savvy under PeopleSoft,” Kinikin explained. “PeopleSoft may have been a little too aggressive about the potential benefits of the merger — but what happened went well.”

According to Kinikin, PeopleSoft always has had good products and somewhat rigid maintenance policies. “I think PeopleSoft could have eased the J.D. Edwards transition with a bit more tender loving care and a few less rules,” she said. “But as frustrating as maintenance issues can be, we’re not really hearing it as a buying issue.”

Recent news reports have described some former J.D. Edwards’ customers as being frustrated with the lack of consistency or clarity in PeopleSoft’s software licensing and maintenance pricing model.