PeopleSoft sued by its shareholders

SEATTLE: PeopleSoft Inc.'s offer to indemnify customers in the event of a takeover by Oracle Corp. will cost too much and prevent stakeholders from accepting a sweetened offer, a group of PeopleSoft's shareholders argued in a lawsuit made public on Friday.

In a motion filed in the Delaware Court of Chancery on Thursday, a group of shareholders argued that PeopleSoft's "customer assurance program" promising to pay back customers' money in the event of a takeover was a "nonredeemable poison pill that is draconian in its effect."

The Pleasanton, California business software maker adopted its customer refund program in June to prevent customers from defecting in the face of Oracle's unsolicited takeover offer, since raised to $7.3 billion.

Earlier this month PeopleSoft Chief Financial Officer Kevin Parker said that the company had changed the terms of the refund program that would double potential customer payouts to a total of near $800 million.

PeopleSoft's attorneys have seen the lawsuit and determined that it was without merit, said company spokesman Steve Swasey.

"We will defend it aggressively," Swasey said.

In a filing with the Securities and Exchange Commission last week, PeopleSoft detailed changes to its customer assurance program, promising to pay between two and five times a customer's software license fees if PeopleSoft is acquired within two years, instead of one year, and if the buyer reduces product support within four years, instead of two.

Oracle, which extended its offer to acquire PeopleSoft earlier in October, weighed in on the shareholder lawsuit, calling the expanded customer assurance program "management entrenchment at its worst."

"These modifications to PeopleSoft's so-called Customer Assurance Program are not about protecting customers," Oracle spokesman Jim Finn said in a statement, "Instead, they reflect PeopleSoft's blatant disregard for shareholder value and choice, preventing shareholders from exercising their right to determine board membership."

Sources said in October that Oracle would nominate an alternate group of directors for PeopleSoft for the next board election. Oracle's offer is effectively on hold pending an antitrust ruling, expected by the end of the year, by the Justice Department.

In the request for an preliminary injunction to nullify PeopleSoft's customer assurance program, shareholders represented by Michael Hanrahan and Bruce Jameson of Wilmington, Delaware, argued that the the plan was "much more debilitating than a traditional shareholder rights program in that it cannot be terminated," indicating that the plan could not be reversed by PeopleSoft's board even if the company's shareholders accepted a takeover offer.

PeopleSoft, meanwhile, said that its new customer assurance program was put in place to benefit its customers, who might hesitate to buy or renew software licenses if they knew that product lines or support might be cut off, which could disrupt operations and inflate costs.

"You have to understand that there was very threatening language from Oracle about the future of PeopleSoft's products," PeopleSoft's Swasey said.

© Reuters