Business software vendor PeopleSoft faces new legal action from shareholders unhappy with the poison pill measures the company has taken to fend off a hostile takeover bid from rival Oracle.
The company has acknowledged that a motion has been filed to suspend its recently amended "customer assurance" program, which offers prospective software buyers refunds in the event PeopleSoft is acquired and its product lines phased out. The assurance program was intended to undermine Oracle's $US7.3 billion unsolicited bid, first announced in June. The move, filed in the Delaware Chancery Court, is the latest of several lawsuits to attack PeopleSoft's poison pill provisions.
The latest legal action came after PeopleSoft disclosed new terms to the Securities and Exchange Commission under which payments of up to five times the cost of its licences would be made should it be bought. Initially, the company said it would make those payments if it were bought within one year. It has now extended that deadline to two years.
The new terms also extend the period under which the payments would be made if a new owner drops any purchased applications or creates plans to end support for them. PeopleSoft initially said the payments would be made if that occurred within two years. It has now doubled that period to four years.
The shareholder motion was filed by the law firm of Prickett, Jones & Elliot, lead counsel for shareholders. It claims the customer assurance program is a "disproportionate and unreasonable response to any threat from Oracle's outstanding tender offer" and "unfairly interferes with PeopleSoft's ability to maximise the value to PeopleSoft's shareholders." The potential liability has already risen to $800 million, as reported publicly by PeopleSoft.
"We want the stockholders to have the opportunity to accept the Oracle bid if they want to," said attorney Bruce Jameson.
The motion also points to other triggering mechanisms, as divulged in the SEC filing on October 27, including an acquiring company's decision to "reduce or materially reduce" the amount of money spent on updates or support or a delay in the release of updates.
"We're going to defend ourselves against the lawsuit, and we believe it has no merit," said a PeopleSoft spokesman. The company believes the customer assurance program "is a benefit to customers and ultimately to the benefit of our shareholders, and we're implementing against that plan."
For its part, Oracle denounced the new poison pill provisions in the following statement from spokesman Jim Finn: "PeopleSoft's latest action is management entrenchment at its worst. These modifications to PeopleSoft's so-called Customer Assurance Program are not about protecting customers. Instead, they reflect PeopleSoft's blatant disregard for shareholder value and choice, preventing shareholders from exercising their right to determine board membership."
In separate legal action, a California judge modified a preliminary ruling on Oracle's motion to dismiss a PeopleSoft lawsuit. In that suit, PeopleSoft accused Oracle of unfair competition and libel. Judge Ronald Sabraw of Alameda County's Superior Court overruled most of Oracle's arguments for dismissal in a tentative ruling earlier this week.
After fielding appeals from Oracle, Sabraw agreed that PeopleSoft hadn't shown that Oracle intentionally interfered in PeopleSoft's contractual relations with customers. But it can amend its complaint to add such evidence, Sabraw wrote in his final ruling.