'PeopleSoft sales tactic is Oracle defense'

PALO ALTO, California: PeopleSoft Inc. has devised a novel sales tactic that will fuel better-than-expected quarterly results and double as a poison pill defense to Oracle Corp.'s $6.2 billion hostile takeover bid, say financial analysts.

PeopleSoft, which has rejected Oracle's all-cash bid, surprised Wall Street by saying that its key software license revenues would be $105 million to $115 million in the second quarter -- significantly higher than analysts had expected.

PeopleSoft said over half those sales would come from contracts covered by a new customer protection program industry watchers said was a takeover defense in disguise.

Those contracts included a clause that said if PeopleSoft changed control, the new buyer would be required to rebate two to five times the amount of the original license agreement.

"It is a poison pill in the sense that Oracle would have to be responsible for these contractual commitments," Wells Fargo Securities analyst Eric Upin said.

One Silicon Valley attorney said it was unclear whether the "poison contracts" are legitimate and if, like traditional poison pills, they could be dissolved.

Ben Wilson, Napa County's head of information technology services, said his second-quarter software purchase came with a guarantee that the California county would be refunded twice the value of its $220,000 deal if, within a year, a third-party acquired over 50 percent of PeopleSoft's outstanding stock or undertook a merger in which PeopleSoft was not the surviving entity.

The contract also said the refund would be made if, within two years, a PeopleSoft acquirer ended its support or its future development of PeopleSoft products.

"That was just the frosting" on the deal, said Wilson, who bought eight different software modules. While PeopleSoft's unusual takeover defense is different from a typical poison pill, some lawyers said it likely would be analyzed by the courts in the same way.

"The question from a court usually is, 'Is adopting the poison pill a reasonable response to whatever the hostile bid is?'" said William Regner, partner in the mergers and acquisitions group at Debevoise & Plimpton.

Poison pills most often come as shareholder rights plans that essentially flood the market with extra shares to make a deal prohibitively expensive for a hostile bidder.

Meanwhile, PeopleSoft is rushing to close its own friendly, $1.78 billion merger with J.D. Edwards & Co.

© Reuters