PeopleSoft Rejects Oracle Bid; J.D. Edwards Sues

PeopleSoft’s board of directors formally voted Thursday to reject Oracle’s now-hostile takeover bid — and J.D. Edwards, which had hoped to be acquired by Peoplesoft, filed two lawsuits aiming to block Oracle’s efforts.

The maneuvers capped a hectic week of high-stakes jousting in the wake of Oracle’s US$16-per-share cash bid to acquire PeopleSoft. That overture came just days after PeopleSoft announced a $1.7 billion stock swap intended to give it control of ERP software maker J.D. Edwards.

No Thanks

The board of Pleasanton, California-based PeopleSoft said the Oracle offer is fraught with difficulties, including potential regulatory delays and a “significant likelihood” that either European or U.S. regulators will block the deal outright. PeopleSoft said Oracle’s announced intention to discontinue stand-alone PeopleSoft products appears to be an attempt to halt the company’s “substantial momentum.”

“Oracle’s offer seeks to enrich Oracle at the expense of PeopleSoft’s stockholders, customers and employees,” said PeopleSoft CEO Craig Conway. “We believe Oracle’s proposed acquisition of PeopleSoft would stifle competition and limit customer choice.”

See You in Court

For its part, J.D. Edwards said it has filed suit in Colorado, claiming “tortious interference” with its acquisition by PeopleSoft. The company also has launched a separate lawsuit in California, claiming that Oracle CEO Larry Ellison and another Oracle executive “engaged in wrongful conduct and unfair business practices.”

The California suit cites published quotes in which Ellison described the move as preplanned and designed to preempt the PeopleSoft-J.D. Edwards deal. It also names Charles Phillips, now an Oracle vice president but until recently an analyst with Morgan Stanley. The claim alleges that when Phillips joined Oracle less than a month ago, he brought with him knowledge of J.D. Edwards’ business and its possible deal with PeopleSoft.

“We will not sit by idly while Oracle pursues this arrogant, unlawful and destructive course of action,” said Bob Dutkowsky, president and CEO of J.D. Edwards.

Staying the Course

Oracle spokesperson Jim Finn told the E-Commerce Times that his company has not reviewed the lawsuit but feels it “has no merit.”

“Clearly, PeopleSoft and J.D. Edwards prefer to fight in the courts [rather] than let shareholders decide,” he said. “We plan to make our case directly to the shareholders and let them decide for themselves.”

Finn also said Oracle is planning a road show aimed at convincing PeopleSoft shareholders that its offer is the best course for the company. He did not say whether or not Oracle will increase its offer. PeopleSoft shares continue to trade above the level of Oracle’s initial $16 tender offer.

Industry Woes

Gartner vice president Tom Topolinski said recent data underscore why the mergers are seen as so important to the companies, with new research showing that CRM license revenue plummeted nearly 25 percent during 2002. That followed a 6 percent drop in the market the year before.

Topolinski told the E-Commerce Times that vendors face smaller deals, longer sales cycles and fierce competition on price and service. According to Gartner, PeopleSoft and SAP were the only major vendors to see sales increase last year, and PeopleSoft now stands neck-and-neck with Oracle in terms of market share. PeopleSoft grew its market share to 4.3 percent last year from 3.9 percent, while Oracle’s fell to 4.3 percent from 5.5 percent.

“Between the overall economic conditions and a new mood among buyers, sales have been hurt pretty significantly,” Topolinski said. New license revenue fell to $2.8 billion in 2002 from $3.7 billion the year before. “Vendors are fighting fiercely to keep their market shares intact.”

Business as Unusual

Frenzy over the PeopleSoft deal overshadowed Oracle’s earnings release, in which the software maker said it boosted net income in its fourth quarter by 31 percent on revenue that inched up 2 percent.

Oracle said sales totaled $2.83 billion, driven largely by software license updates and product support, which grew 12 percent. Net income was $858 million, compared with $656 million in the year-ago quarter.

Not surprisingly given the backdrop, Ellison used the earnings release to tout Oracle’s applications business. “The strength of our applications business is apparent when you compare our results to the results of our competitors,” he said, going so far as to quote PeopleSoft numbers in a statement. “We are beginning to replace PeopleSoft at a number of major accounts.”

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