PeopleSoft board facing another Oracle proxy battle

Oracle launched another offensive on PeopleSoft, saying Wednesday that it will try to seize control of its rival's board and clinch its $9.2 billion hostile takeover bid.

The Redwood Shores software giant nominated four friendly directors that it hopes PeopleSoft shareholders will elect at their meeting in April over the incumbent board members who have rejected Oracle's offer six times. If Oracle succeeds, the new board members would be expected to eliminate PeopleSoft's takeover defenses and allow the deal to close at long last.

The announcement of Oracle's intention to start a proxy fight came a week after 61 percent of PeopleSoft shareholders indicated they would accept Oracle's latest $24-a-share offer despite the opposition of PeopleSoft's board.

In a statement issued Wednesday, Oracle Chairman Jeff Henley said, ``Though a large majority of the stockholders have already indicated their desire to sell, the current board appears intent on obstructing the will of the stockholders. We plan to give them a choice.''

Between now and April, expect a brutal campaign that will turn on a single question: How much is PeopleSoft worth?

PeopleSoft has set earnings projections for next year that imply the company is worth $27 a share -- or more. Oracle says it has drawn a line in the sand and won't offer more than $24. Some of the largest shareholders, whose votes will be key, apparently believe the real number lies somewhere in between.

That means either Oracle will have to raise its bid again, or bet that shareholders will take the money rather than watching the deal -- and PeopleSoft's stock price -- collapse.

``Those shareholders are going to have big leverage,'' said Donovan Gow, an analyst at American Technology Research, which owns no shares and does no banking with either company. ``But the worst thing that could happen to these big shareholders is for this deal to go away.''

Nominations renewed

The four candidates nominated Wednesday were part of the same group of five people Oracle nominated this year when it tried to launch a proxy battle. Oracle withdrew the slate after the Justice Department filed a lawsuit to block the deal.

The nominees are: Duke Bristow, an economist at UCLA's Anderson School of Management; Roger Noall, a former senior executive vice president and chief administrative officer of bank holding company KeyCorp; Laurence Paul, managing principal of Laurel Crown Capital, a private equity investment firm; and Atur Raviv, a professor of finance at Northwestern University's Kellogg School of Management. Because PeopleSoft has one fewer board member than last year, Oracle only needed to nominate four rather than five directors to gain a majority on the board.

On Wednesday, PeopleSoft and Oracle attorneys returned to Delaware Chancery Court to schedule further hearings in an Oracle lawsuit. Oracle has asked a judge to throw out PeopleSoft's anti-takeover poison-pill defense and block a controversial customer rebate program.

The judge, Vice Chancellor Leo Strine, scheduled additional hearings for Dec. 13 and 14. Strine said he wanted to hear more testimony from PeopleSoft's board about why it rejected Oracle's latest offer of $24 a share after a majority of its shareholders tendered their shares last weekend.

Most legal observers say it's unlikely the judge will remove the poison pill. Still, Strine's request for more information from PeopleSoft was seen as a somewhat hopeful sign for Oracle.

``If you want to read anything into it, I would call it mildly positive for Oracle,'' said David Hilal, an analyst at Friedman, Billings, & Ramsey, which owns no stock and does no banking with either company.

Strine also declined to approve a settlement reached in a similar case between PeopleSoft and its shareholders. Last year, shareholders sued the company, alleging the board had failed to properly consider Oracle's initial hostile takeover bid. The judge said the settlement put too many limits on shareholders' ability to litigate other matters surrounding the deal.

An Oracle spokeswoman declined to comment on the Wednesday hearing. PeopleSoft spokesman Steve Swasey said, ``We look forward to the process in Delaware in December.''

Oracle argues the outcome of a proxy fight is a foregone conclusion given the results of the tender offer. In a letter to PeopleSoft's board this week, Oracle all but accused the company of misleading its investors by offering overly optimistic earnings guidance for next year.

PeopleSoft's position

PeopleSoft had countered that many of its shareholders tendered to keep the deal going -- but that many believe the company is worth more than $24 a share.

One of those shareholders, Private Capital Management, which owns 9.2 percent of PeopleSoft's shares, did not tender and said it wanted a higher price. PeopleSoft said its other largest shareholder, Capital Guardian Trust, which controls 10.2 percent of the stock, thought the price should be more although it tendered its shares.

A related fund, Capital Research & Management, owns 7.6 percent of PeopleSoft's stock, and Barclay's Global Investors owns 4.1 percent. Those four funds together could decide the outcome and are likely to push Oracle as hard as possible to raise the bid, analysts said.

``These guys hold millions of shares,'' Gow said. ``It's obviously in their interest to get the offer as high as possible.''

The challenge for the managers of these funds is that many Wall Street analysts are deeply skeptical about PeopleSoft's outlook.

In fact, the majority of analysts seem to think investors would be lucky to get Oracle's current offer.

``It is hard for us to agree with the fact that as a stand-alone company PeopleSoft is worth more today than in February 2004 -- seeing that the company's license revenue forecast for 2005 is what they had expected to generate in 2004,'' UBS analyst Heather Bellini wrote in a note to investors. UBS has done some investment banking business for Oracle in the recent past.

PeopleSoft's stock closed up 18 cents at $23.52 on Wednesday. Oracle's stock rose 9 cents to $12.79.