PeopleSoft And J.D. Edwards Fire Back At OraclePeopleSoft And J.D. Edwards Fire Back At Oracle

J.D. Edwards & Co. and PeopleSoft Inc. have fired back at Oracle, whose hostile takeover bid for PeopleSoft two weeks ago started the conflict. The play has upset PeopleSoft and J.D. Edwards' plans to align forces.

The most aggressive move, taken by J.D. Edwards on Thursday, was the filing of a suit in Colorado state court claiming that Oracle has "tortuously interfered with its proposed merger with PeopleSoft." The suit seeks $1.7 billion in compensatory damages and an unspecified amount in punitive damages. J.D. Edwards also is filing suit in California state court, alleging that Oracle; Larry Ellison, its chairman and CEO; and executive VP Chuck Phillips have engaged in wrongful conduct and unfair business practices. It seeks an injunction that enjoins Oracle from proceeding with its tender offer for PeopleSoft.

"Oracle's unsolicited offer for PeopleSoft will only destroy value for our companies' shareholders, customers, and employees and the technology community overall," Bob Dutkowsky, J.D. Edwards' chairman, president, and CEO, said in a statement. "We will not sit by idly while Oracle pursues this arrogant, unlawful, and destructive course of action."

"We have just heard of this lawsuit," an Oracle spokesperson said in an E-mail Thursday evening. "Clearly, PeopleSoft and J.D. Edwards prefer to fight in the courts than let shareholders decide. We believe that this case has no merit whatsoever."

News of the lawsuit came just hours after PeopleSoft's board unanimously rejected Oracle's unsolicited cash offer of $16 per share, or $5.1 billion, and recommended stockholders do the same.

The board concluded that Oracle's offer would face lengthy antitrust scrutiny and that Oracle's plan to stop selling PeopleSoft products threatened stockholder value. At the same time, the board reaffirmed its support of PeopleSoft's plan to acquire J.D. Edwards.

"Many of the reasons included concern over the likelihood of antitrust scrutiny, the valuation, the predatory intentions, and the devastating effect on customers, employees, and the industry itself," PeopleSoft president and CEO Craig Conway said at a press conference Thursday announcing the board's decision.

During Oracle's fourth-quarter earnings announcement Thursday, which happened just as J.D. Edwards disclosed its lawsuit, Ellison said, "We don't believe PeopleSoft's board has done its job for the shareholders."

He repeated his earlier sentiments that PeopleSoft's acquisition of J.D. Edwards is a risky proposition. "Things are getting worse, not better, at PeopleSoft," he said, maintaining that PeopleSoft's app sales have been declining and Oracle has a higher win rate. He disputed comments by Conway that Oracle is disrupting PeopleSoft's momentum, maintaining that PeopleSoft has no momentum. And "we believe things are worse at J.D. Edwards than they are at PeopleSoft," Ellison said.

Dutkowsky first raised antitrust issues in his opening remarks during J.D. Edwards' annual user conference in Denver this week. Dutkowsky said Ellison's plan to buy PeopleSoft "raises such serious antitrust implications that it will require months of evaluation," and that there's a "high likelihood" that the deal would be blocked by the U.S. government, the European Union, or both.

"Oracle's hostile tender offer will eliminate at least one of its top competitors," Dutkowsky said. "Further development of PeopleSoft applications will cease," he said, adding that "this harm to customers is exactly what antitrust laws are supposed end."

Charles Biggio, a partner with the law firm Aiken, Gump, Strauss, Hower & Feld LLP, says Oracle's offer does raise antitrust questions. Biggio, who worked as a senior official in the Clinton antitrust division, says "each of these companies identify the other as a significant competitor. I think it's certainly worth investigating, to the extent that the overlap results in loss of competition."

The PeopleSoft board's rejection was not necessarily a surprise, since Conway had already made it clear that PeopleSoft is not enamored with Oracle's offer. But the board's formal rejection, and subsequent filing of its position with the Securities and Exchange Commission, does add more punch. "It absolutely gives PeopleSoft some leverage," says Tom Pisello, founder and president of Alinean LLC, a consulting firm that works with CIOs, IT consultants, and vendors to create strategies for achieving return on investment. "I think PeopleSoft is going to fight Oracle's bid pretty hard because they don't feel it's a good deal for the shareholders."