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The Honolulu Advertiser
Posted on: Thursday, July 3, 2003

PeopleSoft profits may help ward off Oracle buyout bid

By Michael Liedtke
Associated Press

Software maker PeopleSoft will likely post a slightly better than expected profit for the second quarter. The news is another setback for rival Oracle's hostile takeover bid. The name Larry on the worker's T-shirt at left refers to Oracle chief executive Larry Ellison and opposition to his takeover attempt.

Associated Press

SAN FRANCISCO — Business software maker PeopleSoft Inc. said it overcame the customer jitters triggered by Oracle Corp.'s $6.3 billion hostile takeover bid to stun its unwelcome suitor with a second quarter that exceeded analysts' expectations.

Based on preliminary calculations, PeopleSoft said yesterday it expects to report earnings of 10 cents or 11 cents per share for the quarter that ended Monday.

If not for charges for previously announced cutbacks, PeopleSoft said its earnings would be 13 cents to 14 cents per share. Those figures beat the consensus estimate of 10 cents among analysts polled by Thomson First Call.

The company said total revenue ranged from $490 million to $500 million, above analysts' consensus estimate of $443 million.

The preliminary results represent a coup for PeopleSoft, which had been scrambling to close deals during the past three weeks to keep investors happy and ward off Oracle's unsolicited offer.

"It was a Herculean effort by PeopleSoft — all the odds were stacked against them," said industry analyst David Hilal of Friedman, Billings, Ramsey & Co.

Redwood Shores-based Oracle dismissed PeopleSoft's results as the product of "one-time gimmicks" and "favors from business partners" that won't generate sales in future quarters.

In a call with analysts, PeopleSoft management acknowledged that the results were boosted by a program guaranteeing customer refunds of up to five times the sale amount if the company is taken over. The pledges covered about half of PeopleSoft's new license sales of $105 million to $115 million for the quarter.

PeopleSoft CEO Craig Conway said an "outpouring of customer goodwill" and "an undeniable backlash of sentiment against Oracle" helped PeopleSoft deliver better sales than management envisioned at the outset of the quarter.

"Many customers were determined not to let Oracle's hostile takeover attempt hurt PeopleSoft," Conway said. "They wanted to help."

Until its surge in the latest quarter, PeopleSoft's performance had been sagging since the end of 2001 — one of the reasons that Oracle says its longtime rival is ripe for a takeover.

If PeopleSoft had missed Wall Street's earnings target, the company's stock might have crumbled and made Oracle's all-cash bid of $19.50 per share look more enticing.

Instead of becoming its Achilles' heel, PeopleSoft's second quarter becomes another weapon in management's antitakeover arsenal.

Conway described the results as an "undeniable vote of confidence" from customers who want the company to pursue its proposed $1.75 billion acquisition of rival J.D. Edwards instead of submitting to Oracle.

PeopleSoft's surprisingly strong second quarter represents the second significant setback this week for Oracle and its colorful CEO, Larry Ellison.

The Department of Justice indefinitely delayed Oracle's bid on Monday by demanding more information about how the proposed combination would affect competition in the $20 billion market for business applications software.

Ellison insists a PeopleSoft takeover wouldn't cause antitrust problems, but convincing federal regulators could require months.

PeopleSoft's second-quarter performance "definitely puts Oracle in a precarious position," Hilal said.

Another industry analyst, Brent Thill of Prudential Equity Group, predicted in a report issued yesterday that Oracle's bid is unlikely to succeed.

But high-tech investment banker Ken Marlin thinks Oracle remains very much in the hunt.

"If anything the second quarter results make PeopleSoft an even more attractive takeover candidate for Oracle," Marlin said, noting Oracle still has plenty of financial leverage to raise its bid.

While Oracle weighs its next move, PeopleSoft appears to have a clear path to complete the J.D. Edwards deal by its July 17 deadline, unless federal regulators decide to take a closer look at how that merger will affect competition. The Department of Justice has until July 14 to ask PeopleSoft for additional information.

Oracle could still try to buy a combined PeopleSoft-J.D. Edwards, but that would raise even more antitrust issues, Thill said.

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