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Oracle's Fight to the Finish

By Jim Kerstetter In a surprise to virtually no one, the board of directors at software maker PeopleSoft (PSFT) on Nov. 10 unanimously advised shareholders to reject the latest takeover bid by rival Oracle (ORCL). Oracle's $24-per-share cash offer, worth about $8.8 billion total, will expire at midnight on Nov. 19 if shareholders fail to tender at least 50% of PeopleSoft.

This standoff will likely come down to the wire. Oracle is all but ignoring the 30% of PeopleSoft shares owned by insiders and retail investors. If they should sell, it will be a happy surprise to the corporate raiders at the Silicon Valley database giant. Instead, Oracle execs have focused their attention on the 30 or so institutional investors who own nearly 70% of PeopleSoft.

It doesn't take a genius to figure out that if the institutional owners of just 20% of PeopleSoft shares hold out for a higher price, it's game over. PeopleSoft goes on as an independent company.

WAITING GAME. But hold on. Oracle remains in the driver's seat in this 17-month takeover squabble. CEO Larry Ellison can walk away from the PeopleSoft bid on Nov. 20 and then just wait. If he's right about PeopleSoft's real value, in about six months the share price will drift from its current $22-per-share range back down to the mid-teens, where it was before the takeover fight started. Oracle execs have shown their determination by spending more than $90 million on this battle so far. It's hard to imagine them walking away now, particularly with such a strong hand.

Ellison & Co. didn't have this kind of flexibility until now. The only way Oracle could get regulatory approval in the U.S.and Europe for a PeopleSoft takeover was to have a deal on the table. Trustbusters don't rule on hypothetical situations.

With antitrust clearance now in his pocket, Ellison could simply withdraw his bid and wait for his prey to slip up. The onus will be back on PeopleSoft CEO David Duffield and his execs to show they can keep the Pleasanton (Calif.) company growing, and its share price up.

FINAL OFFER? Oracle execs insist that such a cat-and-mouse ploy isn't their game. They say they've invested more than enough time and energy in this fight and can find other acquisition targets if they're rebuffed by PeopleSoft investors. They also hired the law firm Latham & Watkins to provide advice on other potential takeovers.

But that's assuming PeopleSoft can't be bought. And it's still too early to say which way institutional shareholders will go. If they do tender shares, they'll likely to wait right up to the Nov. 19 deadline. Some evidence shows that they're moving toward selling -- but it's not overwhelming.

Analysts estimate that arbitrage investors' positions in PeopleSoft may have reached 20% in recent days, well above their typical 5% to 10% range. The increasing stake of arbitrage managers, who would almost certainly sell, could indicate that bigger institutional shareholders are starting to think $24 per share isn't such a bad price.

NOT OVER YET. PeopleSoft's board of directors still has a so-called poison pill that could make a takeover too expensive by flooding the stock market with new shares. If Oracle fails to get such a provision blocked in court -- as it's now trying to do -- the only way to get past the pill would be a proxy fight to take over PeopleSoft's board of directors. Oracle would have to nominate its slate of directors by Nov. 25 for PeoplesSoft's next shareholder meeting next spring.

Of course, if enough shareholders sell to Oracle, the outcome of such a proxy fight would seem predetermined. But this saga still has a few twists and turns left. Kerstetter is a correspondent in BusinessWeek's Silicon Valley bureau

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