Oracle’s Hostile Takeover of PeopleSoft

Case Analysis
Pallavi Porwal –EPGP-12A-070

Question 1
Was Oracle serious about its bid?
Current stock price
Price offered per share
Difference (Premium on current stock)
Facts showing seriousness-
• Larry wanted to give tough competition to SAP which was the No. 1 ERP solutions provider
and majorly operated in European region.
• The merger of PeopleSoft and J D Edwards would push the company at second spot next to
SAP. A risk to Oracle. Oracle needed to merge with Peoplesoft or JD Edward to retain its
position in the market.
• With the acquisition of People soft, Oracle planned to provide enterprise resource offerings
in Finance,SCM,HRM and CRM modules.
• This would boost Oracles sales and generate higher revenue putting it second in the list of
ERP providers after SAP.
• PeopleSoft's earnings per share was also reducing each year – at $0.25 in 2003 while 0.51
was for Oracle
Facts showing non-seriousness of the bid
• Oracle offered price/share was off the charts with less than 6% premium to the
stockholders while average bid value in a hostile takeover is 43.2% basis a study.
$15.11 • Oracle undervalued PeopleSoft's stock to jeopardize their acquisition with JD
$16 Edwards.
5.9% • It was likely that Oracle’s offer would entail a long regulatory approval process
and that an Oracle-PeopleSoft combination may not be approved.
• All the facts above show that it was needed for Oracle to either stop Peoplesoft-
JD Edward merger or Acquire one of these. So, they started with the bid which
favored them in every possible way. It was partially serious as it might stop the
merger of the 2 companies or get acquired if not at $16 but at a little higher value
basis the negotiation.
 It did work in the interest of shareholders as-
• CAP was offered to the customers in case PeopleSoft gets merged or acquired and it is
Question 2 not the acquirer, 2 to 5 times of the amount they paid for their products If products are
discontinued or services are discontinued.
• The total cost that will be incurred by CAP would be 2 billion which is way more than
Is the CAP in the interest of shareholders their revenue in 2003 at 2,267,018
• But the cost will only be incurred if Oracle acquires PeopleSoft and discontinues their
product line. It will not cause any cost to PeopleSoft if it continues as entity or gets
merged with JD Edwards.
• It infact would improve sales for PeopleSoft as CAP should be able to hold the trust of
the customers in the company and its product offering.
• It, on the other hand, would also withhold the Oracle acquisition plan as it is a huge cost
liability for the company- it will be an added 2 billion on 4.2 billion current liabilities of
the company.
• In the event of bankruptcy, given the trust issues amongst customers, PeopleSoft had to
compensate all its customers anywhere between 2-5 times the sale value which is not in
question for now as peopleSoft had plans to grow big with its merger with JD Edwards.
• Even the investing and financing activities show increase in value of share issued in
connection with acquisitions which shows intention of Peoplesoft to acquire other
competitors and grow.
 • CAP has no legal Tenability.
• PeopleSoft proposed a large scale CAP which was never
executed before. It would roughly cost the company over $2
Billion.
• Oracle could counter the CAP legally as PeopleSoft was not
Question 3 cash rich with total assets accounting to ~$4.2 Million and in
event of takeover failure , PeopleSoft would have to struggle
hard to increase its customer base in order to generate revenue.
What is the legal tenability of CAP?
• Oracle also claims that PeopleSoft's customer assurance
program, which guarantees its customers refunds of as much
as five times the license price in the event the company's
products are not supported after a takeover, amounts to an
unofficial poison pill and should also be canceled
• Oracle has already confirmed that it would provide support to
existing PeopleSoft customers, however, would not proceed
with fresh sales of PeopleSoft software. This renders CAP to a
loose ground.
Thank You