Oracle Faces More Obstacles in PeopleSoft Bid

A week ago the U.S. District Court in San Francisco decided for Oracle in the antitrust case brought by the U.S. government, giving the software firm more hope that it can complete its hostile acquisition of PeopleSoft.

“The Department of Justice may want to appeal it, but I don’t think they’re going to get very far,” Forrester Research’s Paul Hamerman told CRM Buyer. That’s because Chief Judge Vaughan Walker did a thorough job reviewing the evidence and writing his opinion.

But all hope is not lost for PeopleSoft.

The European Commission

The European Union’s European Commission (EC), which is still reviewing the case, presents the next obstacle for Oracle.

“It’s really primarily out of PeopleSoft’s hand,” the Yankee Group’s Mike Dominy told CRM Buyer. “If the European Commission rules against Oracle, that’s the best [chance] PeopleSoft has right now.”

Even if Oracle gets the nod from the EC, however, PeopleSoft will retain some options.

White Knights and Poison Pills

“I know PeopleSoft well, and they have a great deal of resolve,” Hamerman said. “They have a lot of cards to play. They still have the poison pill.”

If Oracle tries to buy up a controlling number of shares in a company, PeopleSoft could release premium shares to the market. “The poison pill essentially makes it impossible for the bidder to take over. It protects the shareholders,” Hamerman explained.

But PeopleSoft may not need to dispense the poison pill — if it can find a company interested in a friendly merger. “This certainly is not a done deal,” Hamerman said. “I’d say it has a 50 percent chance of going through.”

Microsoft to Save the Day?

Steve Trotta, a software industry analyst with New Hampshire-based Technology Business Research, told CRM Buyer that Microsoft already has expressed interest in helping PeopleSoft defeat the Oracle bid.

“If the [EC] gives Oracle the green light to go ahead, I don’t think it’s over. I wouldn’t be surprised to see Microsoft step in and get in a bidding war with Oracle,” he said. “As far as Microsoft is concerned, they’re looking to grow their applications business over the next five years.”

Microsoft already has stated that it would like its applications business to represent $10 billion in 2010. Currently, it’s at $600 million.

Trotta said Microsoft is biding its time because a negative decision from the European Commission could quash Oracle’s bid. Without the EC’s blessing, the merger would have significantly less value.

Industry Impact

If Oracle appeals a negative decision in Europe, the case could drag on for another 12 or 18 months, said Trotta, damaging PeopleSoft’s business even more.

And PeopleSoft isn’t the only one hurting. Oracle itself had a rough second quarter this year, Lawson just announced bad news, and Siebel has seen brighter days.

“Oracle certainly took a hit this past quarter. Applications license revenue income dropped by 35 percent,” Trotta said. “SAP has been the only company that has held strong in the past six to eight months.”

But a PeopleSoft acquisition might turn Oracle around, especially in terms of applications license revenues and the accompanying maintenance revenues. Additionally, PeopleSoft would help Oracle’s database business, adding 12,000 customers to the fold.

Job Losses, Bigger Bids

But PeopleSoft’s employees would suffer. “Oracle’s going to eliminate at least 75 percent of PeopleSoft’s staff,” Trotta predicted.

“As for its overall standing in the marketplace, Oracle will still be number two behind SAP,” even with the merger, said the Yankee Group’s Dominy.

Even before the European Commission comes in with its ruling, Oracle may raise its bid from $21 per share to $23 or more per share, said Trotta. PeopleSoft’s statement following the Sept. 9 ruling said Citigroup Global Markets and Goldman, Sachs agreed that $21 per share was an inadequate offer, not representative of PeopleSoft’s current value.

Raising the bid price would also make the poison pill option less viable for PeopleSoft, Trotta said.

In addition, PeopleSoft has filed a $1 billion civil suit against Oracle, seeking reparation for damage to its brand and business brought on by Oracle’s alleged unfair practices. The jury trial scheduled for November is a serious matter and could affect Oracle’s takeover bid even before the jury members take their seats, Forrester’s Hamerman said.