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October 1, 2004

UPDATED: Citing a loss of confidence, PeopleSoft's (Quote, Chart) board of directors said it fired President and CEO Craig Conway in a unanimous vote that could have significant ramifications for the fate of the enterprise software company.

The surprise announcement said PeopleSoft Founder and Chairman Dave Duffield will immediately take his place, just as PeopleSoft is in the midst of fending off a hard-fought power struggle with rival Oracle (Quote, Chart), which launched a hostile bid to acquire the company in June 2003.

The board also made CFO Kevin Parker and Phil Wilmington co-presidents, with board member Aneel Bhusri becoming vice chairman of the board.

Parker will retain his CFO role and will be responsible for internal operations. Wilmington will run worldwide field operations, according to a statement. Bhusri will lead the Pleasanton, Calif., company's product and technology strategy.

In related news, Parker said license revenues for the third quarter are expected to exceed $150 million, which was better than expected.

On a conference call, PeopleSoft officials were asked about the timing of Conway's dismissal, given the strong quarter. PeopleSoft's transaction committee made the decision last night, according to board member A. George "Skip" Battle.

"The very simple and plain reason is that over time the board has become increasingly concerned with Craig's leadership and essentially has lost confidence," said Battle on the call. "There's no smoking gun. There are no accounting irregularities. He is not terminated under the for-cause provisions in his contract. It's a matter of the board losing confidence in Craig, and when that happens one has to make a decision."

Battle briefly commented on Oracle's latest tender offer, noting that all decisions with respect to Oracle's tender offer have been made on the unanimous recommendation of the board's transaction committee.

Battle and the new PeopleSoft officials refused to comment further on the tender offer.

PeopleSoft and Redwood Shores, Calif.'s Oracle are locked in legal battle for possession of the company, which quickly became the No. 2 enterprise applications concern behind German leader SAP.

Oracle last Friday renewed its tender offer for the 11th time, bidding $21 per share for PeopleSoft. Under Conway, the company has rejected any offer out of hand.

The latest $7.7 billion offer was the third since Oracle reduced its takeover price from $26-per-share ($9.4 billion) for PeopleSoft and the first since a federal judge rejected a Department of Justice (DOJ) claim that the proposed merger would violate U.S. antitrust laws.

In September, U.S. District Court Judge Vaughn R. Walker ruled that the DOJ had failed to build a convincing case that the takeover would harm competition in the market for certain enterprise software applications. In a month-long trial, the DOJ repeatedly claimed the deal would create a monopoly in the enterprise resource planning (ERP) market, limiting choices to just SAP and Oracle.

In his ruling, Walker said the government failed to prove that outsourcing solutions, best of breed solutions and so-called mid-market vendors should be excluded from the relevant product market. Furthermore, he said the DoJ failed to establish that the area of effective competition is limited to the United States.

The DOJ has until early November to appeal.

PeopleSoft has its own legal complaint against Oracle scheduled for jury trial Jan. 10. PeopleSoft alleges that Oracle has engaged in unfair business practices, including a campaign to mislead PeopleSoft's customers and disrupt its business. The company wants more than $1 billion in compensation plus punitive damages.

The European Union is also waiting to weigh in on the acquisition, with a decision possibly coming by the end of October.

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