East Bay Business Times - December 13, 2004
PeopleSoft agrees to $10.3B takeover by Oracle
By Eric Lai
It took 18 months and a sweetened offer, but the board of directors of business software maker PeopleSoft Inc. said Monday that it has agreed to accept a hostile takeover offer from Oracle Corp.
Oracle will pay $26.50 per share, up from $24 which it had called earlier its final offer, leaving PeopleSoft's operations and employees in Pleasanton up in the air - and current and past executives much richer.
In late September, David Duffield rejoined the company he co-founded as its chairman and CEO. Since then, he has repeatedly vowed that the company was not for sale. He now stands to reap more than $500 million.
Former CEO Craig Conway, who had bitterly fought the takeover until his firing at the end of September, will also benefit financially.
The local job and real estate market will do less well. PeopleSoft owns and leases 1.16 million square feet in Pleasanton, where 3,500 employees work.
Orace chief Larry Ellison did not provide details about Oracle's plans for PeopleSoft 12,000 employees or its buildings but he did concede in an interview with CNBC, "There will be some job losses at PeopleSoft, there will be some job losses at Oracle."
Oracle had said nearly a year ago that it would fire up to 6,000 PeopleSoft employees, though it subsequently retracted that figure. But the acquisition will still likely result in thousands of PeopleSoft employees re-entering the job market or leaving the area for new jobs.
The weak Tri-Valley commercial real estate market will also suffer.
"There is a huge glut of space right now," James Paxson, general manager of the Hacienda business park where PeopleSoft is headquartered, told the East Bay Business Times in June. "If it all came out onto the market, it would be very bad for the Tri-Valley."
In the Bay Area, PeopleSoft also has offices in Santa Clara, San Francisco, and Sunnyvale. It has a large office in Denver as a result of buying J.D. Edwards in 2003.
That leaves Sybase Inc. the largest high-tech firm headquartered in the East Bay. Sybase Inc. (NYSE: SY) which has a 406,000 square foot office in Dublin, employs 755 people there. Wind River Systems Inc. (NASDAQ: WIND), headquartered in Alameda, has about 500 employees there.
PeopleSoft says its board, following discussions throughout the weekend, approved a definitive merger agreement under which a subsidiary of Redwood Shores-based Oracle (NASDAQ: ORCL) will acquire all shares of Pleasanton-based PeopleSoft (NASDAQ: PSFT) in the all-cash deal worth approximately $10.3 billion.
PeopleSoft approached Oracle late last week about the possibility of a higher offer, Oracle Chief Executive Officer Larry Ellison said. It marked the first time since Oracle's original and unsought takeover bid in June 2003 that the two companies had a positive discussion.
"They did seek us out. We think there's real value in doing a friendly deal," Ellison told CNBC, the cable television financial news channel Monday morning. "We were making a lot of assumptions about their business."
He said once Oracle had a closer look at PeopleSoft's books, it made sense to up the offer.
"We looked at their maintenance business ... and we saw it was even more profitable than we thought," Ellison told CNBC.
Ellison says the acquisition gives Oracle more scale and momentum and will boost earnings.
The winning offer was 50 cents per share over Oracle's previous highest offer, made about a year ago. On Nov. 21, Oracle claimed PeopleSoft was worth just $21 per share. It later made a "final" tender offer of $24 a share, which nearly 61 percent of PeopleSoft shareholders agreed to.
Current and past PeopleSoft executives will do nicely as a result.
Duffield, PeopleSoft's third largest shareholder, had a total of 18.9 million shares held in a variety of accounts, according to a Form 4 filed with the Securities and Exchange Commission on November 30. At $26.50, his shares are worth $502 million.
Conway, who was fired as PeopleSoft's CEO at the end of September, will also do well.
According to an East Bay Business Times analysis in conjunction with Lafayette human resources consulting firm, Syzygy Consulting Group in mid-October, Conway left PeopleSoft with a package - including both severance-related benefits, and shares and options that Conway already owned - worth $64.2 million if Oracle bought PeopleSoft at $26 per share within a year.
At $26.50 a share, Conway's leaving package from PeopleSoft is now worth $67.4 million.
David Broman, CEO of Syzygy, said PeopleSoft didn't try hard enough to get a better price.
"The floor share price was always $26. The 50 cent premium looks like a $188 million 'bone' so the board can save face with employees and the 39 percent holders that did not tender their shares to Oracle," said Broman. "And Duffield's share of the 50 cent 'bone' is about $9.5 million. Not bad pay for two months of work."
As part of the agreement, Oracle and PeopleSoft have agreed to drop legal actions against each other.
The offer is subject to at least a majority of the fully diluted outstanding shares being validly tendered into the offer and to a limited number of other customary conditions.
Asked if he had envisioned such a lengthy and often bitter battle to buy Oracle's smaller rival, Ellison replied, "Never in my wildest imagination."
Reach Lai at elai@bizjournals.com or 925-598-1405.
