Oracle clinches PeopleSoft with US$10.3b deal

PeopleSoft Inc on Monday agreed to a sweetened $10.3 billion ($14.68b) buyout by rival software maker Oracle Corp, relenting after a 18-month takeover saga marked by personal insults, courtroom battles and the ouster of PeopleSoft's chief executive.

Oracle's US$26.50-per-share bid, which creates the world's second largest business software maker, was approved by the board of directors of both companies just three weeks after PeopleSoft had again rejected a hostile bid despite support from a majority of its shareholders.

The deal, expected to close in early January, topped Oracle's previous offer of US$24 a share, which Oracle had insisted was its best and final offer. The takeover has already received US and European Union antitrust approval.

Oracle is betting the acquisition will allow it to develop more software products to better compete with SAP AG, the leader in the market for software that helps companies automate business processes such as payroll and inventory-tracking.

The deal underscores a sluggish software industry that has few high-growth prospects after many big companies spent huge sums of money in the 1990s on new products that will last them for several years.

PeopleSoft helped trigger the consolidation in the sector with its purchase of JD Edwards in 2003.

"It tells everyone else in the software business that it truly is a no-growth business," said Eugene Walton of Walton Holdings, an independent technology stock research firm.

Oracle launched its hostile offer for PeopleSoft with a bid of US$16 a share in June 2003.

PeopleSoft shares jumped about 10.3 per cent to US$26.43 on the Nasdaq to their highest level in 19 months. Oracle shares rose about 9.6 per cent to US$14.55, an 11-month high.

Analysts said Oracle's stock was boosted in part by its strong second quarter earnings released early Monday that showed profit margins rose from 37 per cent to 41 per cent.

During Oracle's Oracle US antitrust trial over the summer, analysts who evaluated the implications of a merger estimated in court testimony that between 6000 and 10,000 PeopleSoft employees could be laid-off.

Oracle and PeopleSoft were scheduled to appear Monday in Delaware Chancery Court for a hearing on Oracle's lawsuit to void PeopleSoft's shareholder rights' plan, which had been the last barrier to a hostile takeover.

Triggering the rights' plan, or poison pill, would have made a deal prohibitively expensive for Oracle.

Oracle Co-Founder and Chief Executive Larry Ellison said in an interview with reporters that Oracle increased its bid after getting more details from PeopleSoft about its 2005 earnings outlook, which most analysts have said was too optimistic.

"We looked at the data and (PeopleSoft's) numbers were better than we thought," Ellison said, adding PeopleSoft's big customer base would double the number of companies to which Oracle can sell its applications software.

Ellison said discussions began last week after PeopleSoft floated a US$26.50 per-share offer to Oracle "through back channels" and offered more information about its business.

The two California-based rivals held "friendly" merger talks in June 2002 before discussions broke down over who would run the company and how a merged company would operate.

Some analysts said they believed Oracle overpaid for PeopleSoft. "I'm still concerned about the price. I was unsure about the US$24 offer price and I think US$26.50 looks more unattractive," said Sanford Bernstein analyst Charlie Di Bona, who does not own any PeopleSoft or Oracle stock.

The protracted battle had been marked by bitter accusations, including a threat by PeopleSoft Co-Founder and CEO Dave Duffield to sue Ellison for defamation over information released by Oracle about Duffield's stock sales.

Duffield, who co-founded PeopleSoft in 1987, returned as CEO after previous chief executive Craig Conway, a former Oracle executive, was ousted by the board due to a lack of confidence over how he handled Oracle's takeover bid.

- REUTERS