The tea leaves on Oracle's takeover plans for PeopleSoft have never been harder to read than they are right now.
For most of the 16 months Oracle has waged its campaign to win control of its rival, the chances of the deal's completion have been firmly in the "unlikely" category. The expected opposition of antitrust regulators was one factor, but the biggest obstacle for Oracle was the resistance of PeopleSoft's management. So long as PeopleSoft was led by a chief executive officer (CEO) claiming the company wasn't for sale to Oracle at any price, Oracle had little hope of successfully acquiring PeopleSoft through its tender offer to shareholders, now valued at US$7.7 billion.
Thanks to PeopleSoft's poison pill, the company's board of directors can essentially deflect Oracle's advances for as long as they remain in office.
But last Friday's firing of Craig Conway as PeopleSoft's CEO, followed by PeopleSoft director Steven Goldby's testimony this week that he would be open to discussions with Oracle if the price were right, has changed the dynamics of the situation between Oracle and PeopleSoft from standoff to detente.
Analyst guesses are all over the map about how likely the deal is now to be completed. On the one hand, the new CEO selected by PeopleSoft's board strikes long-time company customers and observers as an odd choice if the board hopes to quickly strike a deal with Oracle.
David Duffield, one of PeopleSoft's founders, has a reputation for being deeply committed to PeopleSoft's customers, who overwhelmingly oppose the deal.
On the other hand, with shareholder interest building in the cash Oracle is offering and with antitrust blocks to the deal nearly gone, Oracle's board may not be able to continue its resistance.
Goldby said that he would consider negotiating with Oracle "if there is ever an indication that Oracle is willing to pay what we consider to be the right price for the shareholders to get for this company, and there is a high certainty of being able to close a transaction quickly."
The Yankee Group said that it thought PeopleSoft's executive team was "clinging to the hope that Duffield can muster support to prevent shareholders from voting in favor of the buyout, but is largely resigned to the takeover".
Goldby's testimony came at the trial in Delaware's Chancery Court, which Oracle has asked to void PeopleSoft's antitakeover "poison pill" provision and its "customer assurance program" promising customers compensatory payments if PeopleSoft is acquired by a company that disrupts its product development and support plans.
The poison pill provision in PeopleSoft's bylaws allow its board to inflate the company's outstanding shares total and make a hostile takeover prohibitively expensive.
On the first count, Oracle faces long odds, according to experts. Delaware courts haven't overturned a poison pill since the late 1980s, But if Oracle opens discussions with PeopleSoft's board and wins its support for the acquisition, the poison pill issue becomes moot. How likely is that? It's impossible to tell.
While Goldby seemed to open a door to Oracle in his testimony, he also reiterated that PeopleSoft's board considered and rejected as inadequate the $US26 per share cash offer Oracle made earlier this year, before Oracle lowered its bid to the current $US21. He also emphasised that decisions about the Oracle bid were made by a five-person committee of PeopleSoft's independent directors.
While Conway, and now Duffield, could comment on Oracle's offer, the CEO has little direct influence over whether it will be accepted -- meaning that the resistance so far to the bid has come unanimously from all of PeopleSoft's directors.
Oracle could advance its bid by raising its offering price, but there's only so high the company can go before it risks alienating its own shareholders. Financial analyst, Chris Kwak, said that if the paying price crept much higher, Oracle would generate better value for its shareholders by spending the billions it would pay for PeopleSoft on a stock buyback instead.
"A lot of people believe Oracle will have to raise its bid," Kwak said. "Our view has been that $US21 [per share] is a pretty generous offer. It may be that the intrinsic value of PeopleSoft is less than $US21 [per share], but the value of PeopleSoft to Oracle is more than that, if they are successful in finding synergies and reducing headcount. Still, if the price gets too high -- beyond $23 or $24 [per share] -- Oracle would do better to back away and buy back its own stock."