Finally, Oracle To Buy PeopleSoft

Oracle Corp. said today it has finally struck a deal to buy PeopleSoft, ending its 18-month takeover battle.

Oracle (Research) said it is paying $10.3 billion, or $26.50 a share, for the rival business software developer. That's up nearly 11 percent from PeopleSoft's (Research) Friday close of $23.95.

Shares of Oracle surged 7 percent in pre-market trading according to INET while PeopleSoft's stock shot up more than 10 percent.

Separately, Oracle announced a better-than-expected gain in second-quarter earnings.

"The real highlight of our most recent quarter was the 57 percent growth in our applications business, and this merger is going to make that applications business bigger and stronger," said a statement from Oracle Chief Executive Officer Larry Ellison.

PeopleSoft put out its own statement saying its fourth quarter results have been running ahead of plan and that the new offer represented, "good value for PeopleSoft stockholders."

"This has been a long, emotional struggle, and our employees have consistently performed well under the most challenging of circumstances," said the statement from A. George "Skip" Battle, chairman of the PeopleSoft board's Transaction Committee.

Watch out SAP?
Oracle's previous offer for PeopleSoft had been $24, or $9.2 billion, a price it had insisted was its last and best offer. Oracle announced last month that 61 percent of PeopleSoft's shares had been tendered to it at that lower price. Oracle said that it is extending its current tender offer until Dec. 28 to reflect the higher bid.

Ellison said during a conference call with analysts Monday morning that PeopleSoft approached Oracle over the weekend in order to negotiate a friendly deal and that, as a result of some of the data PeopleSoft provided about its business, Oracle was willing to raise the purchase price again.

The original offer in June 2003 had been for $16 a share, or $5.1 billion. Oracle raised its offer several times and even lowered it once during the course of the hostile bid. The company's previous high was an offer of $26 a share.

But PeopleSoft's board had continued to fight the offer, and a drawn-out court fight or possible proxy fight loomed.

The two companies were scheduled to return to a Delaware court this week. Oracle had sued PeopleSoft in an attempt to have PeopleSoft's so-called "poison pill" takeover defense removed. Ellison said Monday morning that all outstanding litigation between Oracle and PeopleSoft will now be dismissed.

He also stressed during the call that Oracle planned to support and enhance existing software made by PeopleSoft as well as products developed by J.D. Edwards, another software company that PeopleSoft acquired last year.

There had been some concern on the part of PeopleSoft that Oracle was merely seeking to buy PeopleSoft for its lucrative base of application software customers and was not interested in supporting the company's products.

Oracle, which generates the majority of its sales from its flagship database software, has struggled to compete with the likes of PeopleSoft and industry leader SAP in the field of application software, which businesses use to automate routine corporate tasks such as human resources and supply chain management.

A combined Oracle-PeopleSoft should be a tougher competitor to SAP, which many analysts say has benefited from the turmoil that the year-and-a-half long takeover battle has created in the software market. Shares of SAP fell slightly in pre-market trading Monday morning.

Oracle said it hopes that the deal will be closed by January. The company added that it expects the merger to add one cent per share to its earnings for the fiscal fourth quarter and about eight cents per share in fiscal 2006. Oracle Chief Financial Officer Harry You said that any debt incurred to pay for the PeopleSoft deal should be paid off within two years.

You added that Oracle expects sales for its fiscal third quarter, which ends in February, to be between $2.7 billion and $2.9 billion, ahead of Wall Street's consensus forecast of $2.64 billion. You also said Oracle was comfortable with the consensus earnings per share estimate of 14 cents per share for the quarter.