PeopleSoft shareholders say yes to Ellison bid

Oracle chalked up a key victory on Friday in its battle to acquire PeopleSoft, with investors agreeing to sell the suitor 60 per cent of PeopleSoft's outstanding shares.

The shareholder vote of confidence keeps the $9.2bn bid on the table, but it far from seals the deal because PeopleSoft, which has rejected the offer, is protected by an anti-takeover provision. The so-called poison pill dilutes the holdings of any hostile buyer that acquires a stake of 20 per cent or greater in the company, making an uninvited transaction prohibitively expensive.

Oracle chief executive officer Larry Ellison said in a statement: "The owners of PeopleSoft have spoken and have overwhelmingly chosen to sell to Oracle at $24 per share. We are prepared to enter into a definitive merger agreement as early as this weekend."

A letter to PeopleSoft's Board of Directors states that Oracle's $24 per share offer is "fully valued" and "clearly fair".

"There is no business execution risk for your shareholders," the letter continues. "It represents a substantial premium to PeopleSoft's true historical trading multiples. There are no alternative bidders or counter offers. Most important, it has now been endorsed by a majority of your shareholders."

PeopleSoft issued a statement on Saturday rebuffing Oracle once again. "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 and that the company is worth substantially more than the $24 per share offered by Oracle."

PeopleSoft had anticipated the outcome of the shareholder contest and vowed to fight the deal. It defended its stance in its statement on Saturday, saying many shareholders that tendered to Oracle are still hoping for a better price.

George "Skip" Battle, PeopleSoft board member and chairman of its Transaction Committee, said in the statement: "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."

"This majority is comprised of stockholders who did not tender their shares, as well as stockholders who tendered but told us that they believe PeopleSoft is worth more than $24 per share," he continued. "We are confident that in the time leading to our 2005 annual meeting, we will continue to demonstrate PeopleSoft's superior value to our stockholders."

By alluding to its annual meeting, PeopleSoft signalled that it's preparing for the next phase of the battle - a proxy fight for control of its board. To prevail in a proxy fight, Oracle must convince shareholders to elect, at the upcoming meeting, a slate of new board members friendly to its cause. With control of the board, Oracle could then remove the poison pill that now stands in its way.

Friday's victory for Oracle, which was widely expected, comes after weeks of intense campaigning in advance of the offer's 9 p.m. (PT) expiration on Friday. Oracle had promised to walk away from the deal if investors tendered fewer than 50 per cent of PeopleSoft's shares.

Oracle must now act quickly to prepare for the proxy fight. The deadline for nominating candidates for the next PeopleSoft board member election is Thursday. With the deadline falling on Thanksgiving Day, Oracle has just three business days left to name its candidates.

Oracle had nominated candidates for PeopleSoft's last election, which took place at the target company's annual meeting on 25 March. But Oracle pulled them after antitrust regulators moved to block the takeover -- a case that the company ultimately won. Oracle has not disclosed its plans for nominating directors in this second go-around.

PeopleSoft has not yet set a date for its 2005 annual meeting.

Yet Oracle is wasting no time arguing its case.

"We believe the combination of Oracle and PeopleSoft is compelling," Oracle said to PeopleSoft's board in Friday's letter. "The joint company will have a larger combined customer base, expanded brand reach, critical mass in more industries, and be able to provide substantially better global support. Most important, the combined company will be more competitive against SAP, Microsoft and a wave of new outsourcing competitors."

Meanwhile, PeopleSoft argued that it's strong enough on its own. The company reiterated on Saturday that it expects to improve its financial picture in the current quarter, with higher profits and revenue compared with a year ago. It anticipates increasing revenue by as much as eight per cent next year and boosting software sales by as much as 10 per cent.

Alorie Gilbert writes for CNET News.com.