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What's Next for PeopleSoft?

By Jim Kerstetter Those acquisitive executives at Oracle (ORCL) are getting pretty good at jumping legal hurdles. On Oct. 26, the European Commission announced it won't block Oracle's proposed hostile takeover of rival software maker PeopleSoft (PSFT). It was the last antitrust barrier to the $7.7 billion deal. In September, a federal judge rejected the U.S. Justice Dept.'s attempt to block Oracle on antitrust grounds.

Nonetheless, the EC decision doesn't mean the takeover is a done deal. PeopleSoft said in a statement that its board will consider the commission's decision, but noted that it has unanimously rejected every offer Oracle has made since it first went after the Pleasanton (Calif.) company 15 months ago. Oracle's latest cash bid is $21 per share. PeopleSoft stood at $20.09 as of Oct. 26's close.

PUNDIT FATIGUE. As long as PeopleSoft's board won't budge, Oracle still faces two more legal hurdles. A Delaware judge is expected to rule within the next few weeks concerning whether PeopleSoft must repeal a customer-rebate program that could cost Oracle an additional $2.4 billion if it gets stuck with this bill in the takeover.

PeopleSoft has also sued Oracle for $2 billion, accusing the Silicon Valley database-software giant of intentionally interfering with PeopleSoft's business. That trial is expected to start in January in Oakland.

The endless legal wrangling is enough to tire even the most ardent of software-industry pundits. "At this point, I'm weary of the whole thing," says Jim Shephard, vice-president at Boston-based AMR Research. "I frankly would like it to be resolved one way or another."

NOT A SOFT TARGET. It will. But for Oracle CEO Larry Ellison to get his way, he may have to raise his price. And cash-rich Oracle can afford to go up to the high-$20s per share, Neil Herman, a Lehman Brothers analyst, said in an Oct. 26 research report.

That is, if Ellison really wants to. A debate has always raged over whether Ellison wants to acquire PeopleSoft as a way to dismantle a rival or to complement his empire. The controversy was renewed when PeopleSoft on Oct. 1 fired its chief executive, Craig Conway, and reinstated founder Dave Duffield to run the company.

For days after the ouster, investors tried to figure out whether Duffield's return meant PeopleSoft was ready to begin negotiating with Oracle or was still battling Oracle's takeover. But in the end, it appeared that Oracle's overtures continue to be rejected (see BW Online, 10/6/04, "No White Flag Flying at People Soft").

"TOUGHER COMPETITOR." While testifying in the Delaware trial, Ellison hinted that Oracle may lower its bid because he believes PeopleSoft's business is weakening, despite a surprisingly strong third quarter. Herman, for one, thinks the CEO might be bluffing. "We believe the successful acquisition of PeopleSoft...would fundamentally make Oracle a tougher competitor in the marketplace," he wrote.

Likely so. But at some point, Ellison needs to find a way to move the drama forward, especially now that the antitrust obstacles have been removed. He also needs to signal the marketplace what his endgame is. Investors are listening and waiting. Kerstetter is a correspondent in BusinessWeek's Silicon Valley bureau

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