Oracle wins PeopleSoft

$26.50-a-share offer ends bitter 18-month battle

December 14, 2004|By Joseph Menn | Joseph Menn,LOS ANGELES TIMES

SAN FRANCISCO - The board of PeopleSoft Inc. bowed to its investors yesterday - and to one of the most aggressive executives in Silicon Valley - by agreeing to sell the company to Oracle Corp. for $10.3 billion.

The deal caps a bitter, often personal 18-month fight that captivated Wall Street and Silicon Valley, even though few casual computer users know much about either company's products.

Yesterday's agreement was reached over the weekend, during the first direct negotiations between Oracle and People- Soft. The talks convened after PeopleSoft asked Oracle to raise its previous "best and final offer" by $2.50 a share, to $26.50. The offer was accepted, giving PeopleSoft shareholders a 10.6 percent premium over the company's Friday closing price of $23.95.

The PeopleSoft board's approval heads off a court fight over the company's anti-takeover provisions. In November, 60 percent of PeopleSoft shareholders agreed to sell to Oracle for $24 a share, but the People- Soft board threatened to block a sale by flooding the market with additional shares.

After the purchase closes next month, database maker Oracle will become one of the largest producers of the software that powers back-office functions for large corporations, allowing it to compete against market leader SAP of Germany.

But the business aspects of the deal were overshadowed during PeopleSoft's struggle by the sniping between former PeopleSoft Chief Executive Officer Craig Conway and Oracle founder and CEO Lawrence J. Ellison, a flamboyant executive unaccustomed to losing.

Conway, who was ousted in October, was a former Oracle executive and an Ellison protege - before he likened his old boss to Mongolian warlord Genghis Khan.

In a letter to PeopleSoft employees yesterday, company founder and chief executive David A. Duffield struck a more diplomatic tone, but his disappointment was clear.

"I offer my sincere apologies for not figuring out a different conclusion," wrote Duffield, who started the company in 1987 and returned as CEO after Conway was sacked.

Employees said Duffield's sentiments reflected the mood at PeopleSoft headquarters in Pleasanton, Calif.

"A lot of people are upset, but it's a unifier," one worker said. "There's a unity in defeat."

In launching his June 2003 bid, Ellison shrugged off the software industry's historic aversion to hostile takeovers. He kept fighting even after the federal government sued to block it.

The 60-year-old billionaire shifted part of his rationale for the deal over time but still hammered away with high-priced legal and Wall Street talent. By belittling PeopleSoft's prospects while raising his offer, he left many shareholders - and eventually the PeopleSoft board - seeing no other way out.

"It's an all-is-fair-in-love-and-war approach to acquisitions," said analyst Tad Piper of Piper Jaffray & Co. "The aggressive rhetoric is very much a part of the style."

For Ellison, winning PeopleSoft was a matter not just of ego but also of long-term survival.

Oracle, headquartered in Redwood City, Calif., gets most of its revenue by selling database programs that hold large amounts of information. It and International Business Machines Corp. are close rivals in that field. Competing against them at the lower end of the market are Microsoft Corp. and others.

To broaden its portfolio, Oracle has tried with mixed results to sell more business programs that run on top of databases and manage payroll, billing and other corporate functions. Ellison wanted to add PeopleSoft's much larger set of business programs to compete better with SAP.

With the addition of PeopleSoft, Ellison said in a conference call with analysts, Oracle will double its customer base to become the top seller of business programs in North America and in such sectors as retail banking.

Oracle defeated a Justice Department lawsuit seeking to block the merger on antitrust grounds. At the trial, Ellison predicted the demise of an independent PeopleSoft and other specialty firms that solve only one business problem or another. He said that over time, many large customers would become dependent on multiple products from Microsoft or those cobbled together by IBM, and that Oracle needed to expand to survive.

"He's right, the enterprise software sector is maturing," said stock analyst David Hilal of Friedman, Billings, Ramsey & Co. "Whenever anything matures, there's always a consolidation."

PeopleSoft put up a tremendous fight, in part because the corporate cultures of the firms have been so different.

While PeopleSoft has long been known for collegiality, Ellison fostered a sales-drive climate of fierce internal competition. A one-time Oracle executive, Conway found a refuge as the head of PeopleSoft, and he opposed a merger with his former employer at any price.

Conway lost his job late in the battle, when testimony showed he had understated the harsh impact of the fight on PeopleSoft's business.

PeopleSoft lobbied for the Justice Department lawsuit. The company rejected numerous versions of Oracle's bid and refused to revoke its poison pill takeover defense, which could have kept Oracle from acquiring a majority of PeopleSoft shares.

PeopleSoft shares rose $2.47 to close at $26.42 on the news, while Oracle increased $1.37 to close at $14.65. Both trade on Nasdaq.

The Los Angeles Times is a Tribune Publishing newspaper.

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