PeopleSoft’s most recent tactic to stave off Oracle’s hostile takeover bid is being hailed by Canadian users as “a smart response” that will keep customers on side and make it increasingly difficult for the bid to go
“This levels the playing field out,” said David Mawby, manager of applications support for the City of Oshawa and a member of the Eastern Canada Regional User Group. He referred to PeopleSoft’s “customer assurance program” that guarantees users of the company’s enterprise software will receive refunds of two to five times their initial licence fee – often tens of millions of dollars or more – if an acquiring company fails to support PeopleSoft products.
“You’ve got Oracle putting fears into the minds of potential purchasers about what’s going to happen to the software,” said Mawby. “And PeopleSoft is … helping to alleviate (those fears) so there’s not a significant impact to their business. It was a smart response.”
The fact that this program might play a role in halting Oracle’s takeover bid is “probably a good side benefit” of offering the refund program, added Mawby.
PeopleSoft introduced the refund program shortly after Oracle launched its tender offer last June. Initially, PeopleSoft said the program would only affect $60 million in sales, which is a fraction of Oracle’s $7.3-billion takeover bid. But Oracle said it discovered the program could cost as much as $800 million following an Oct. 27th conference call concerning PeopleSoft’s third-quarter earnings.
This revelation touched off a legal furor. In a motion filed to a Delaware court earlier this month, Oracle called the program “draconian” and so “unreasonable” that it could make the takeover “unfeasible.”
Accordingly, Oracle has requested a preliminary injunction against the program.
While the court motion attracted an international media storm, Steve Elioff hasn’t been paying much attention to it. The vice-president CRM program director at Toronto-based AGF pointed out that his company’s agreement with PeopleSoft was made well before the situation with Oracle erupted.
“So the financial incentives and the rest of the noise around the takeover (bid) isn’t affecting our interaction with PeopleSoft,” said Elioff, adding the decision to purchase enterprise software is a huge capital investment and once the momentum is moving in that direction “inertia keeps you going.”
“So we’re quite satisfied with what we have currently in place with PeopleSoft and we’re moving forward with them.”
The refund plan was geared more to customers who were on the defence or shelving decisions to purchase PeopleSoft products, said Elioff. “These people were looking for some guarantees to make sure they weren’t going to get hurt financially.”
Steve Swasey, PeopleSoft spokesman, agreed the intent of offering the program was to soothe any “severe trepidation” that customers had following the launch of Oracle’s bid.
Whether PeopleSoft has been successful in doing so can be found in the company’s recent performance, said Warren Shiau, senior analyst software at IDC Canada.
“Their numbers were good before they did it, and their (recent) numbers have been very good,” said Shiau. “So just by that, it appears the rebates are generating business for PeopleSoft. Based on what we see in Canada, PeopleSoft is getting a lot of support, and that is in dollars as well.”
As to whether the plan will play a large role in keeping Oracle’s bid at bay, “the rebate helps,” added Shiau. “If PeopleSoft is doing well, then it helps them when they say: ‘We are a strong company independently, and if you’re a shareholder then you really ought to keep your money in us, and your interests lie in PeopleSoft because we can produce results.’”
Whether the refund plan poses “an unfair impediment to anybody looking at acquiring PeopleSoft, this may be a stretch,” said Shiau. “If PeopleSoft wants to offer rebates and they get business out of it, then that’s an accepted business practice.”
Swasey called the possibility of any legal ramifications resulting from the program “a lot of speculation” and he defended the plan as “a good business move to favour customers.”
However, the larger issue, said Shiau, does not involve refund plans. Rather, “in any takeover proposition, it boils down to whether the price is good enough.” The outstanding issue is that PeopleSoft has implemented a share buy-back at market price, explained Shiau.
The market price of PeopleSoft shares – which stood at US$20.77 per share on Monday – is higher than Oracle’s bid price of US$19.50.
“Do you tender to Oracle’s offer where you’re going to be limited … to US$19.50 or do you have a definite buyer if you submit your shares to the share buy-back program which could go even higher because there’s no cap on it?” said Shiau.
Meanwhile, the U.S. Department of Justice told Oracle last week the review of its bid may last until January 2004. Initially, the department was expected to make a decision by this month or next. However, Oracle officials were told the department wishes to dig deeper into the impact that this takeover will have on the $20-billion business applications software market. Ottawa’s Competition Bureau is expected to make a decision on the heels of the forthcoming verdict in the U.S.