More than 60 per cent of PeopleSoft’s shareholders have tendered their shares to Oracle, but the PeopleSoft board plans to carry on its fight, rejecting its rival’s $9.2 billion hostile bid yet again.
As of its deadline on Friday, Oracle said 228.7 million PeopleSoft shares had been tendered, giving it the majority it needed to continue its 17 month takeover bid. The company had said that it would walk away from the deal if shareholders had not backed the bid by the close of business on Friday.
Oracle immediately called for the PeopleSoft board of directors to open negotiations to close the deal. "The owners of PeopleSoft have spoken and have overwhelmingly chosen to sell to Oracle at $24 per share," said Oracle CEO Larry Ellison. "We are prepared to enter a definitive merger agreement as early as this weekend."
But the PeopleSoft board was in no mood to co-operate, choosing instead to claim that the 61 per cent majority included many who did not really want to sell out at the current offer price. "PeopleSoft's board of directors has met and considered the results of Oracle's unsolicited tender offer and unanimously reaffirmed its previous conclusion that Oracle's latest offer is inadequate," the company said in a statement.
"Based on the numerous conversations we have had with our largest stockholders... the Board believes that a majority of our stockholders agree that Oracle's $24 offer is inadequate and does not reflect PeopleSoft's real value," said A. George Battle, chairman of the Transaction Committee of independent directors.
But Jeff Henley, Oracle chairman, insisted in a letter to the PeopleSoft board that its new fiscal year 2005 guidance is "simply not credible." He said: "Just as your FY 2004 guidance was manufactured as a basis to oppose our previous offers—and was, in fact, not achieved—your new guidance is equally not credible and appears to be little more than an attempt to justify opposing our current offer. If one looks at independent consensus 2005 earnings estimates for PeopleSoft, $24 per share reflects a very generous premium relative to true earnings multiples."
Henley also said in the letter that, leading up to Nov. 19, trading volume in PeopleSoft's common stock was "uncharacteristically heavy." Based on Oracle's estimates, he said, as much as one third of PeopleSoft's stock—up to perhaps 125 million shares—was sold by long-term investors at prices ranging from $22.50 to $23.
"In other words, the best indication of actual shareholder sentiment is that nearly one-third of your company was actually sold—not merely tendered—at prices well below $24 per share," he said. "These shareholders sold into a market valuation created by the existence of our offer, not by your underlying fundamentals, and they sold at prices materially below $24 per share."
The battle now moves to the courts in Delaware on Wednesday where Oracle will attempt to persuade a judge to remove PeopleSoft’s 'poison pill' option which would instigate a flood of new stock onto the market if Oracle gains more than 20 per cent of the company. This would force Oracle to buy the newly issued shares, making the acquisition more expensive.
It's theoretically possible that the courts could decide that the the tender result is sufficiently decisive, but it seems more likely that they will uphold the poison pill in the face of a unanimous board holding out for a higher price for shareholders.
That makes the next stage a prolonged proxy battle for control of the PeopleSoft board. Oracle will nominate new PeopleSoft board members who might be more favorable to a buy-out. Four of the seven strong PeopleSoft board are up for re-election at the annual shareholder meeting in the Spring.
The PeopleSoft board’s best chance of victory will come if it can deliver on the financial projections that it made last week, projections which many Wall Street analysts have said are too optimistic. Essentually PeopleSoft will have to deliver two quarters of good earnings to be in with a chance of winning back its shareholders.
Henley concluded in his letter: "We are obviously at an impasse. The burden for bringing this matter to a close rests with you. There is no good reason to shift the burden of resolution from the board to your shareholders through a protracted proxy battle next spring.
"These tactics are transparent to all involved. Your shareholders have had more than a year and a half to evaluate our offer relative to your stand-alone plan, and they have chosen Oracle's offer. They should not have to wait another four months (or more) for an outcome."