Oracle sues PeopleSoft and JD Edwards; state sues Oracle

The three companies are dominant players in the market for ERP (Enterprise Resource Planning) software, basically software that helps a business to manage, diverse processes that include product planning, parts purchasing, maintaining inventories, interacting with suppliers, providing customer service and tracking orders.

Signs of consolidation in the ERP market began on 2nd June when PeopleSoft and JD Edwards announced a definitive agreement for PeopleSoft to acquire JD Edwards, creating the world's second largest ERP software company, in a transaction valued at approximately $1.7 billion.

But on 6th June, Oracle submitted a cash tender offer of $16 a share to PeopleSoft – a deal which did not include the proposed acquisition of JD Edwards. Oracle, chaired by Larry Ellison, is the world's second largest software company, after Microsoft. Fortune magazine's Fred Vogelstein speculates that Oracle's hostile takeover bid is hostile in the truest sense of the word:

"Ellison has no plans to merge the two companies; he simply wants PeopleSoft's code, its customers, and its best workers. Most of the company's 8,200 workers would lose their jobs if the deal goes through."

On 12th June, PeopleSoft's board of directors voted unanimously to recommend that shareholders reject Oracle's bid, concluding that the offer would undoubtedly face lengthy antitrust scrutiny, with a strong likelihood that approval would not be granted.

According to the board, the delays and uncertainties created by Oracle's offer, coupled with Oracle's stated intent to discontinue PeopleSoft's products, represent a substantial threat to stockholder value. But the PeopleSoft board needs to win the support of its shareholders.

Last Friday, JD Edwards filed a lawsuit in the Colorado state court claiming that Oracle has "tortiously interfered" with its proposed merger with PeopleSoft. The suit seeks $1.7 billion in compensatory damages and an unspecified amount in punitive damages.

JD Edwards has also filed suit in the California state court, against Oracle and two of its executives. The California suit alleges that Oracle, Larry Ellison and Chuck Phillips, Oracle's executive vice president, have engaged in wrongful conduct and unfair business practices. It seeks an injunction to stop Oracle from proceeding with its tender offer for PeopleSoft.

An Oracle spokesperson described the allegations as a "smokescreen", adding, "This is a tactic designed solely to distract PeopleSoft shareholders from making a choice while PeopleSoft management remains intent on keeping hefty pay packages and neglecting the best interests of shareholders."

PeopleSoft joined the action late Friday, filing a petition to prevent the takeover proceeding.

Both PeopleSoft and JD Edwards confirmed their commitment to the merger on the 16th of June, with PeopleSoft sweetening the deal with a promised cash payment to JD Edwards' shareholders. According to Reuters, PeopleSoft may be hoping to use a quick acquisition of JD Edwards, which Oracle is unsure that it wants, to fend off the software giant.

Two days later, Oracle made its formal response, increasing its cash tender offer to purchase all of the outstanding shares of PeopleSoft to $19.50 per share, totalling approximately $6.3 billion.

"In the last few days, Oracle executives have had the opportunity to speak with the holders of a majority of PeopleSoft shares," said Larry Ellison in a statement. He continued:

"Many of those shareholders indicated the prices at which they would tender their shares. Therefore, Oracle is raising its all-cash offer to $19.50 per share. Oracle remains committed to acquiring PeopleSoft and will not be deterred by management's manoeuvres to maintain control of a company they do not own. Contrary to what PeopleSoft management would have you believe, Oracle intends to fully support PeopleSoft customers and products for many years to come. Satisfying those customers is the key to the success of this acquisition."

In addition, Oracle filed suit in Delaware against PeopleSoft, its board of directors, and JD Edwards in response to what the company called "their collective efforts to eliminate PeopleSoft shareholders' ability to accept Oracle's tender offer."

Oracle contends that PeopleSoft and its board breached their fiduciary duties, including failure to act in the best interest of PeopleSoft's shareholders. Oracle seeks, among other things, rescission of the amended JD Edwards merger agreement and redemption of the PeopleSoft "poison pill."

PeopleSoft responded with a short statement, advising its shareholders to take no action at this time. It confirmed that "PeopleSoft's Board of Directors, consistent with its fiduciary duties, will meet to review and discuss Oracle's revised $19.50 per share tender offer and will make its recommendation to PeopleSoft stockholders in due course".

But the situation was complicated further when the State of Connecticut yesterday filed an antitrust lawsuit against Oracle.

The lawsuit alleges that the acquisition of PeopleSoft by Oracle would violate state and federal antitrust laws, directly damage the state and its economy, and raise prices for businesses, governments and consumers by significantly reducing competition in the markets PeopleSoft serves. It would force current PeopleSoft customers to replace their software with other companies' products.

"In filing this lawsuit today, Connecticut is taking the necessary steps to protect our taxpayers. Oracle's hostile takeover bid has the potential to cost the state millions of dollars and is a threat to the progress we have made in recent years in technology improvements," said Governor John Rowland.

According to Reuters, a spokeswoman for Oracle commented that Connecticut officials had been "misled" by PeopleSoft, and that if the takeover was successful Oracle would be able to carry out Connecticut's state projects at a cheaper cost.

A copy of the antitrust lawsuit is available at:
www.cslib.org/attygenl/mainlinks/linkindex1.htm