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Oracle's Hostile Bid Draws Lawsuit

Oracle and PeopleSoft merger
AP / CBS
Shortly after the market closed Thursday, J.D. Edwards filed two lawsuits against Oracle and demanded $1.7 billion in compensatory damages over the company's hostile takeover attempt of PeopleSoft, reports CBS Marketwatch.com.

Jim Finn, an Oracle spokesman, dismissed J.D. Edwards' suits as frivolous.

"Clearly PeopleSoft and J.D. Edwards prefer to fight in the courts than let shareholders decide," Finn said. "We believe that this case has no merit whatsoever."

In the lawsuits filed in California and Colorado, Denver-based J.D. Edwards also charges Oracle founder Ellison and top lieutenant Chuck Phillips with wrongful conduct and unfair business practices.

"Oracle's sole aim is to disrupt a merger that will create value for the key stakeholders of J.D. Edwards and PeopleSoft," said Bob Dutkowsky, J.D. Edwards CEO, in a statement.

Business software maker PeopleSoft Inc. had rejected a $5.1 billion hostile takeover bid by rival Oracle Corp. earlier Thursday in a move likely to force the company's unwelcome suitor to sweeten its offer or walk away from the proposed deal.

The unanimous decision of PeopleSoft's board didn't come as a surprise given that company CEO Craig Conway recoiled from Oracle's unsolicited $16-per-share offer almost as soon as it was made last week.

Conway, a former Oracle executive, reiterated his contempt for the bid Thursday in a statement that described the offer as an attempt "to enrich Oracle at the expense of PeopleSoft's stockholders, customers and employees."

If it acquires Pleasanton-based PeopleSoft, Oracle intends to lay off thousands of employees to boost profits and phase out PeopleSoft's software, which helps companies run their personnel departments and other behind-the-scenes operations.

Oracle accused Conway of trying to kill the bid even before PeopleSoft's board had a chance to consider it. The Redwood Shores-based company also criticized PeopleSoft's board for not meeting with Oracle executives before making its decision.

"Oracle is disappointed the PeopleSoft board has put the self interest of management over the best interests of PeopleSoft shareholders," Finn said.

Separately, Oracle said it earned $858 million, or 16 cents per share, in the quarter ended May 31 — a 31 percent improvement from net income of $656 million, or 12 cents per share, from the same time last year. The results exceeded the consensus estimate of 14 cents per share among analysts polled by Thomson First Call.

In an interview Thursday, Conway said he and the other six members of PeopleSoft's board gave "careful and due consideration" to Oracle's bid.

In reaching its decision, PeopleSoft's board said it concluded a takeover by Oracle would raise serious antitrust concerns in the United States and Europe, creating "a significant likelihood" that government regulators wouldn't approve the deal.

A union between PeopleSoft and Oracle would create the world's second largest maker of business software applications behind German-based SAP. Oracle doesn't believe the merger would be opposed by antitrust regulators.

PeopleSoft is pursuing a takeover of Denver-based J.D. Edwards & Co. that also would create the second largest vendor of business applications software. PeopleSoft executives said they don't believe that proposed combination, to be created through a $1.8 billion stock swap, would face antitrust problems.

Thursday's snub seems likely to force an answer to a question investors have been asking since Oracle made its surprise offer: Is it willing to pay more money for PeopleSoft?

PeopleSoft's shares have remained well above $16 since Oracle made its bid, giving shareholders little reason to sell their stock to the company.

Even after PeopleSoft announced its recommendation Thursday, the company's shares continued to trade above Oracle's bid, falling 23 cents to $17.39 on the Nasdaq Stock Market. Oracle's shares edged up 4 cents to $13.31 on the Nasdaq.

"I think there is about a 50 percent chance that Oracle will up the bid and about a 50 percent chance that $16 per share is its best and final offer," said analyst Robert Becker of Argus Research Corp.

Although PeopleSoft's board would be required to reconsider a revised Oracle offer, Conway believes the decision will be the same because of the antitrust concerns. He likened Oracle's motives to two rich brothers, Nelson and William Hunt, who unsuccessfully tried to corner the silver market in 1979 and 1980, only to lose $1 billion.

"I know everyone is gathering around the water cooler wondering at price this commercial transaction can get done, but if it's something that would corner a market, then it can't be sold," Conway said.

Oracle intends to meet with major investors to drum up support for its bid, said Jeff Henley, the company's chief financial officer. "The goal is to get out and educate the market on the choices they have," Henley told reporters Thursday.

With $6 billion in cash and plenty of good credit, Oracle could afford to pay more. But Oracle Chairman Larry Ellison has emphasized his belief that $16 per share represents a fair value, given the risks that PeopleSoft would face in a J.D. Edwards merger.

Raising the ante also might hurt Oracle's credit rating. Moody's Investors Service has downgraded its outlook for Oracle to "negative," citing the cash drain that a PeopleSoft deal would create. Standard & Poor's took a similar action last week, citing merger worries.

PeopleSoft's board denigrated Oracle's current bid as too little, saying it "dramatically undervalues the company."