Oracle - PeopleSoft Case Study

FIN 640 Mergers & Acquisitions

Dr. Jay Cai
Spring 2014

Group 3
Avi Lebovic
Lazerick Russell
Dave Sandberg









Introduction paragraphs.

If we were an independent director of Peoplesoft, we would not recommend the
stockholders to take the offer. It does not maximize shareholder wealth by offering a slim
premium above current pricing trends. Based on the timeliness of the offer, we would be
suspect of the integrity and legitimacy of the offer in the first place. The well known reputation
of Oracles CEO, Larry Ellison, would reinforce the strategic assumption behind the offer and
the public statement about absorbing Peoplesofts products and not offering to support them
in the long term. In this industry, a statement such as this hits at the heart of the sales
challenges. (What tactics would we take?)
As independent directors of PeopleSoft we would recommend that PeopleSoft employs
a Just Say No defense tactic and cite the multiple examples of suspect statements from Oracle
management as evidence of an unfavorable future for PeopleSoft shareholders. Furthermore,
we would suggest involving some litigation to delay the process, deter Oracles ability to engage
in a proxy fight for board control, and force Oracle to raise their offer to substantiate the
legitimacy of their offer. PeopleSoft already possesses a staggered board, which will deter
Oracle to some degree. However, since the board only has two classes of directors the
opportunity for Oracle gaining control and eliminating the poison pill is still present. Therefore,
adding litigation may be a necessary measure to add to PeopleSofts anti-takeover defense.
Oracles tender offer created several challenges and interruptions to Peoplesofts
operation. Namely, by design, it halted the merger between Peoplesoft and J.D. Edwards. If the
merger was successful, they combined corporation would surpass Oracle into the number 2
position. It would be in Oracles best interest if the merger did not happen, or that they were
involved in a merger themselves. The move of Oracle offering a tender offer may solve that
issue whether it acquires Peoplesoft or it does not. The offer itself interrupts Peoplesofts
business, which result in destroying the company or going through with the merger. And for
Oracle, it would be a great deal based on a low offer.
Peoplesofts response of a implementing a poison pill AND a CAP was a great strategic
response. The CAP program works very well as a different type of poison pill. It doesnt
necessarily prevent a merger, but it does prevent the current customers from being left out to
dry. The cons are that a CAP cannot easily if at all be rescinded. Even if Peoplesoft wanted to
move forward with Oracleit could, but Oracle would have to agree to provide long term
support of the Peoplesoft product in order to avoid reimbursement to the customers. The pro
is that a CAP cannot be easily if at all rescinded. Which means, even with a change of board
members, a poison pill can be removed, but the CAP remains.
Possibly the best way to determine if Oracle was seriously considering a merger or just
wanted to disrupt the market is reflected by those that know Larry personally. PeopleSofts
CEO, Conway worked directly for Ellison and knows first hand his tactics and questionable
actions, which motivated him to respond in such a way that is concerning to the board. His
response may be personal, or perhaps to him an obvious response based on the best future for
Peoplesoft.
Conways actions, however, did raise some concerns and conflict with PeopleSofts
board. Conways strong comments stating that PeopleSoft will never consider an offer from
Oracle could potentially raise suspicions about the ethics of PeopleSofts management and
board decisions. Recent corporate financial scandals had resulted in stricter corporate
governance requirements (Sarbanes-Oxley Act of 2002) and indicated that corporate companies
would be under much more scrutiny. Conways statements could be misconstrued as not being
in the best interest of the company, because, potentially, there would be an offer price in which
PeopleSoft shareholders would benefit. As independent directors, we would advise that
Conway stop making such definitive statements and instead just cite the long list of reasons
why this deal could result negatively.
One of the negative reasons that Conway should choose highlight is Oracle and Larry
Ellisons rumored ethical issues. Larry Ellisons reckless behavior and questionable business
tactics raise the potential for future litigation costs public investigations. As independent
directors we would recommend that PeopleSoft management uses these negative accusations
to persuade shareholders to reject the Oracle offer. Specifically, Ellisons use of unethical
dodgy business practices, such as hiring corporate spies and paying off nightly cleaning crews
to rummage through their competitors trash, could be an indication that this hostile bid is not
genuine and simply just a tactic to thwart the companys success and place barriers to
surpassing them in a maturing software industry.
Furthermore, this case exemplifies the effects of slow economic conditions, in growing
industries. This industry was experiencing rapid growth, however as economic conditions began
to slow down; players in the industry began to realize that broader product lines and
applications were necessary to survive. Intuitively, consolidations with other product lines
through mergers and acquisitions would be the best way to broaden a companys product
offerings. In todays economic environment, industries involving evolving technologies have the
highest probability of experiencing a wave of consolidations. An industry such as cable
television, which is facing increased competition from developing technologies and services
such as Smart TVs and Netflix or Hulu, would be an industry potentially facing a wave of
consolidations. (maybe another industry example)
Conclusion