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October 4, 2004

Continued from Page 1

Several Obstacles Remain in Path of Merger

As for PeopleSoft, Paul Hamerman, a vice president and market analyst at Forrester Research, believes the move to oust Conway was prompted by customer dissatisfaction and a lack of technology direction.

"Dave Duffield built PeopleSoft as a customer-centric software vendor, but customers felt alienated under Conway's leadership, mainly due to rising maintenance costs and a proliferation of add-on products, some of which could have been provided as enhancements," Hamerman said. "I believe that Duffield wants to realign the company with his original vision, that looking after customers is a path to shareholder value. PeopleSoft will attempt to reach out to customers to restore confidence and put the company back on a path toward innovation."

Oracle's next obstacle is PeopleSoft's Customer Assurance Program (CAP), which guarantees that customers receive up to five times their money back if Oracle takes control of PeopleSoft. Lawyers for both sides are expected to square off in court over the issue Monday in Delaware.

"The customer assurance program can be addressed as long as Oracle continues to support PeopleSoft products adequately," Yankee Group's Dominy said. "Oracle must outline a plan that shows how PeopleSoft customers will be cared for [in the event of a merger] so that the CAP cannot be triggered. Also note that the CAP has a limited timeframe on it and can be rendered inactive if the company acquiring PeopleSoft is welcomed by PeopleSoft."

Even if it manages to remove PeopleSoft's CAP refund, Oracle's pursuit has other major hurdles to face, including a pending antitrust investigation by overseas regulators with the European Commission, a so-called "poison pill" in PeopleSoft's by-laws, and even a proxy war if PeopleSoft's Board of Directors do not see eye to eye with investors.

Ken Marlin, managing partner of New York-based Marlin & Associates, a mergers and acquisitions investment bank, told internetnews.com PeopleSoft's rejection of Oracle had nothing to do with price or anti-trust concerns and everything to do with the fact that PeopleSoft management, led by Craig Conway, hates Larry Ellison. It's personal.

"From the beginning, we have been saying that there is no legitimate antitrust issue and that Oracle will negotiate a higher price," states Marlin. "Further, the only way that a board can determine that a price is 'too low' is if management provides financial forecasts indicating that its actions will cause the share price to rise even higher than the outside offer. We were shocked that the PeopleSoft board refused to talk. We could not see how the PeopleSoft management could argue that it could independently make the company worth more, in the near term."

Analysis courtesy of internetnews.com