- The Washington Times - Thursday, July 3, 2003

SAN FRANCISCO (AP) — Business software maker PeopleSoft Inc. disclosed yesterday that its second-quarter deals could saddle Oracle Corp. with customer refunds totaling $354 million if the spurned suitor prevails in a hostile takeover bid.

The unusual refund promises, detailed in a Securities and Exchange Commission filing, would wipe out most of PeopleSoft’s second-quarter revenue, which the company expects to range between $490 million and $500 million.

Seeking to reassure customers uncertain about the company’s future, PeopleSoft offered to return two to five times the sales amount if it’s acquired and there are dramatic changes to its products or services during the next two years.

The $354 million figure is more than three times higher than PeopleSoft’s second-quarter sales of new software licenses, which management said will range from $105 million to $115 million.

The refund bill would be inherited by PeopleSoft’s new owner — a mantle that Redwood Shores, Calif.-based Oracle hopes to assume with its $6.3 billion bid.

It’s not clear whether Oracle’s takeover plans would trigger the refunds that PeopleSoft promised an unspecified number of customers in the second quarter.

“This is kind of like inserting a lottery clause into a contract — I doubt these contracts will be enforceable,” said analyst Cameron Steele of RBC Capital Markets.

Still, the size of the promised refunds infuriated Oracle.

“This is a scorched-earth policy that is meant to entrench management and reduce the value of the company,” said Oracle spokesman Jim Finn.

Despite its irritation, Oracle is continuing its PeopleSoft pursuit.

Oracle yesterday extended the deadline for PeopleSoft shareholders to accept its all-cash offer of $19.50 per share to July 18 — the day after PeopleSoft hopes to complete a friendly $1.75 billion acquisition of another software maker, J.D. Edwards.

Through yesterday, Oracle said 34.75 million PeopleSoft shares had been tendered. The total is about 11 percent of PeopleSoft’s stock. PeopleSoft can trigger a defense mechanism known as a “poison pill” if a predator acquires 20 percent of its stock.

To complete its offer, Oracle must also satisfy federal antitrust regulators, who earlier this week said they are taking a closer look at the proposed takeover of PeopleSoft. It could take months before Oracle responds to a Department of Justice request for additional information on the deal.

PeopleSoft’s refund promises helped the company record second-quarter results that topped analysts’ expectations, but yesterday’s revelations about the scale of the rebates raised new doubts about the strength of the performance.

“Some people are going to be looking skeptically at the gimmickry involved here,” Mr. Steele said. “This really isn’t a sustainable sales strategy.”

While promising some refunds was probably prudent under the circumstances, “the extent to which it was done seems to be quite aggressive,” said analyst Tad Piper of U.S. Bancorp Piper Jaffray.

PeopleSoft also might have hurt itself by creating a liability that makes it less attractive to a white knight that might rescue it from Oracle’s clutches, analysts said. PeopleSoft has said it might entertain offers from other bidders.

PeopleSoft’s shares fell 14 cents to close at $17.84 on the Nasdaq Stock Market yesterday. Oracle shares shed 30 cents to close at $12.15 on the Nasdaq.

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