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Ellison: PeopleSoft talked merger in 2000

Oracle CEO says rival company raised the idea, but talks foundered over who'd lead the conjoined company.

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By Declan McCullagh CNET News.com

WILMINGTON, Del.—Oracle Chief Executive Larry Ellison testified Friday that he and his board of directors came close to a merger with PeopleSoft in 2000, and had expected that last year's takeover bid would have been accepted within a matter of weeks.

Ellison indicated that he had never anticipated the roadblocks that PeopleSoft's then-CEO, Craig Conway, would put in place to thwart the proposed acquisition. Those roadblocks included a lobbying campaign to persuade state governments and the U.S. Department of Justice to block the deal, the adoption of a "poison pill" scheme, and the filing of a lawsuit that temporarily derailed the proposed purchase.

The Justice Department last week conceded defeat, saying it would not appeal a court ruling that said Oracle could continue with its merger plans.

As for Oracle's offer for PeopleSoft, Ellison said: "There have been discussions about raising the price," but also "there have been more discussions about lowering the price."

On Thursday, an Oracle board member testified that the company's current $21 per share offer might not be its last. Earlier in the week, a PeopleSoft board member testified that a sale would be possible if Oracle were to boost its offer and if there were a "high certainty" that the deal could close quickly.

At one point, Oracle had raised its offer to $26 per share, but then lowered it to $21 in part because the tech industry overall had slumped, Ellison said.

Ellison compared Oracle's bid for PeopleSoft to IBM's initially hostile bid for Lotus Development nearly a decade ago, which ended in friendly talks. He said that Oracle expected its PeopleSoft bid, launched in June 2003, to follow suit.

"Most hostile takeover bids end up in friendly negotiations," he said. "(We) expected the offer to come down to negotiations between us and PeopleSoft."

"I thought this thing was going to happen very quickly—shows what I knew," Ellison added.

Ellison's testimony during the trial, which began Monday in Delaware Chancery Court, is designed to show that Oracle's bid was sincere and that PeopleSoft's board and management did not act in the best interests of shareholders when rejecting it and adopting anti-takeover defenses. Oracle has filed suit to eliminate those defenses, which represent some of the few remaining obstacles to the purchase.

Leadership clash
Conway, who was fired Friday, in part over his statements to analysts related to the takeover bid, took the stand earlier in the week and admitted to vilifying Oracle's proposed buy. He also defended comparisons of Ellison to Genghis Kahn.

Ellison said Friday that he had no personal animus toward Conway and that he disagreed with the decision to fire the former Oracle executive in the early 1990s. Conway was one of the company's top salespeople.

The 2000 talks about the potential purchase were started by Conway, Ellison said, but failed when the PeopleSoft executive insisted on running the combined application software company. Conway "made it very clear that he was not interested in a merger unless he was running the combined company, period," Ellison testified.

Since 2003, when Oracle made its first public bid, both sides have been locked in an often fierce battle. Among the salvos that PeopleSoft has fired at its rival is a charge that if Oracle were to succeed in its acquisition effort, it would be quick to do away with PeopleSoft's products.

On Friday, Ellison disputed that charge.

"They were constantly lying to their customers, they were mischaracterizing what we were doing, they were saying we were going to kill the product," Ellison said. He said discontinuing PeopleSoft's products would be a "terrible idea" that would waste billions of dollars and get him fired by his board.

During afternoon cross-examination of Ellison, an attorney for PeopleSoft showed internal Oracle documents indicating that Oracle sales people and public relations personnel were trying to convince customers not to buy PeopleSoft products and instead choose Oracle offerings.

One note, sent by Peggy O'Neill, Oracle's vice president of analyst relations, said "we're not planning to mantain and continue development of PeopleSoft's product lines." Ellison said in response that it's difficult to keep over 40,000 people—a reference to the total number of Oracle employees— on message. But he admitted that taken by itself that message to customers "would panic" them.

At one point after Ellison dodged a question from PeopleSoft attorneys, Judge Leo Strine took over and asked whether Ellison would have been happy with "PeopleSoft having a pretty awful quarter that would hurt them rather badly," and make them cheaper to acquire. Ellison replied: "Yes".

The Delaware case, which is expected to conclude next week, represents Oracle's attempt to eliminate the poison-pill defense, which would effectively block any hostile takeover of PeopleSoft.

PeopleSoft's poison-pill strategy would make a hostile takeover bid prohibitively expensive, because it would release a flood of additional shares to the market, making it difficult or impossible for an acquirer to purchase all the shares needed to gain a controlling stake in the company. This strategy is one of the few remaining obstacles to the acquisition after the failure of the Department of Justice's bid to block the deal.

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