Oracle makes 'best and final' PeopleSoft offer

Oracle announced Monday that it has increased its PeopleSoft takeover bid to $24 a share, calling the figure its "best and final" offer for its rival.

The database giant says it will drop the acquisition plan it has pursued since June 2003 if PeopleSoft shareholders don't tender at least half the outstanding stock by the 19 November deadline.

Oracle chairman Jeff Henley said during a conference call with analysts on Monday that "We believe this offer is substantially higher than where PeopleSoft shares would trade without the offer. The $24 a share is our highest offer, and it's a 60 per cent premium over PeopleSoft's shares when we commenced our offer." Proxy experts called Oracle's threat - to pull out if 50 per cent of the shares are not tendered - a bold move.

Rick Grubaugh, senior vice president of proxy solicitation firm D.F. King & Co. said: "To put out an ultimatum that they will walk is a pretty strong statement. But sometimes it's the only way you can get shareholders to tender if they think the expiration date will be extended."

PeopleSoft advised its investors to hold onto their stock until the company's board of directors can evaluate the amended offer and make a recommendation. PeopleSoft shares were up $2.20, or 11 per cent, at $22.97 in Monday morning trading.

The most recent of Oracle's four bids had been $21 per share, or $7.7bn. At $24 a share, Oracle's offer now stands at $8.8bn. The new bid, still below an earlier offer of $26, comes a week after the last of the regulatory hurdles had been removed when the European Commission approved the merger plan. Oracle, in raising its offer price, is now hoping to remove the last major obstacle to the deal - the poison pill.

PeopleSoft's poison pill provision, a defence against hostile takeovers, would flood the market with shares if Oracle were to acquire a significant stake. This would presumably raise Oracle's acquisition cost to a prohibitive level.

If PeopleSoft's board of directors does not voluntarily remove the poison pill, Henley said, Oracle's the next move will be to await the decision of the Delaware Chancery Court, which has yet to rule on Oracle's lawsuit to overturn the policy.

Proxy experts say the Delaware court has rarely, if ever, forced a company to remove its poison pill. If the court leaves the policy in place, Oracle may try an end run, proxy experts say.

"There's been numerous times when this has happened in hostile takeovers," D.F. King & Co's Grubaugh said. "The takeover company will usually try to get their dissident slate of directors elected, who'll later remove the poison pill."

Oracle also has to contend with keeping its own shareholders happy. The company is not only raising the price it is paying for PeopleSoft, but Oracle's Henley acknowledged the company has since learned of additional costs it will face in operating as a merged company. Further, Oracle plans to walk a tightrope with PeopleSoft products if the acquisition succeeds. "We'll put some new functionality into the [next] upgrade, but we still don't plan to actively market new PeopleSoft products," Henley said.

By assigning a new version number to that planned upgrade, PeopleSoft 9, Oracle would try to walk a fine line of offering enough enhancements to keep PeopleSoft customers paying their annual maintenance fees, without spending too much on improving a software line it wants to discontinue.

Matt Hines and Dawn Kawamoto write for CNET News.com.