Michael Kahn and Martha Graybow

SAN FRANCISCO/NEW YORK: PeopleSoft Corp. fired its chief executive Craig Conway just hours before U.S. antitrust regulators said they would drop their case against Oracle Corp.'s $7.7 billion hostile bid for its software rival.

The news sent PeopleSoft stock up more than 14 percent and past Oracle's $21-per-share offer on investor expectations that Oracle could now reach a deal for the corporate software vendor at a higher price.

The board of Pleasanton, California-based PeopleSoft said independent directors had voted unanimously to dismiss Conway, citing a "loss of confidence" in his leadership. PeopleSoft founder and chairman, Dave Duffield, took over as CEO.

Although Conway had been seen as the chief opponent to Oracle's takeover offer, PeopleSoft said its board has been aligned with him in rejecting Oracle's past offers.

Conway came to PeopleSoft in 1999 from Oracle, where he had a rocky relationship with Oracle's flamboyant founder and chief executive, Larry Ellison.

Charles Di Bona, an analyst at Bernstein, said Conway's firing could improve Oracle's chances. "You've got to think that on the margin it makes the transaction a little easier," he said.

"A lot of investors felt Conway had mismanaged the business to some extent and a lot were upset about the way he handled the Oracle situation," said Wedbush Morgan analyst Nathan Schneiderman.

Duffield, who is PeopleSoft's largest individual shareholder with a stake early this year of over 7 percent, said Conway's termination was not related to the Oracle bid.

"Over time the board has become increasingly concerned with Craig's leadership and essentially has lost confidence," PeopleSoft board member Skip Battle said. "There is no smoking gun, there are no accounting irregularities, he is not terminated under the for-cause provisions in his contract."

PeopleSoft named Chief Financial Officer Kevin Parker and another executive, Phil Wilmington, as co-presidents.

Conway's surprise ouster came just hours before U.S. Justice Department antitrust authorities said they would not appeal a San Francisco federal court ruling that rejected the government's request to block the Oracle bid.

Meanwhile, both sides said they would press ahead with lawsuits against each other.

PeopleSoft is seeking more than $1 billion in punitive damages against Oracle in a California suit scheduled for a January trial.

Oracle said it was pleased with the Justice Department decision and would turn its attention to a trial in Delaware next week targeting PeopleSoft's board of directors. It had no comment on Conway's firing.

In its Delaware lawsuit, Oracle is looking to overturn PeopleSoft's customer rebate program, a "poison pill" that promises customers refunds if the company is sold and software support is inadequate.

PEOPLESOFT OUTLOOK

Oracle launched its surprise takeover bid in June 2003, originally offering $16 a share. In February, it sweetened the offer to $26 a share, before cutting it back to $21 a share in May due to a decline in PeopleSoft's stock.

Oracle has argued it needs to acquire PeopleSoft to better compete with market leader SAP AG of Germany and Microsoft Corp.

PeopleSoft, which has seen earnings decline over the four quarters since Oracle announced its offer, has said the bid has made its customers more hesitant to buy.

Wedbush Morgan's Schneiderman predicted Oracle likely would have to raise its bid to between $24 and $26 per share, largely because of PeopleSoft's outlook, also given, for third-quarter license revenue of more than $150 million.

The forecast for license revenue, a key sales measure closely tracked by analysts, was "very impressive," Schneiderman said, adding he had expected license revenue of about $100 million in the typically slow September quarter.

A.G. Edwards analyst Kevin Buttigieg said in a note to investors that PeopleSoft could be positioning itself for a white-knight bid from a third party, with Conway's ouster making way for the CEO of another company to run a combined entity.

"It could ... mean that the third company is not a large company like IBM or Microsoft Corp., but a more comparably sized firm like a Siebel Systems that could be strategically disadvantaged by an Oracle/PeopleSoft combination," Buttigieg wrote.

(Additional reporting by Sinead Carew, Dane Hamilton and Franklin Paul in New York, Peter Kaplan in Washington and Julie Macintosh in Philadelphia)