In the latest twist in the hostilities between Oracle and PeopleSoft, Wall Street's footsoldiers are massing for battle.
With a Friday deadline looming, Private Capital Management—one of PeopleSoft's largest institutional investors—said Tuesday it will not tender its stake in the business software maker at Oracle's price of $24 a share. That's a body blow to Oracle's bid to take over PeopleSoft.
Oracle, meanwhile, countered that Capital Guardian Trust plans to tender its shares in favor of the merger. Capital Guardian is PeopleSoft's largest institutional investor, with a 10.2 percent stake, or 37.4 million shares.
Those are just the latest salvos in 17 months of high-stakes combat pitting Oracle and PeopleSoft. Investors now must choose whether to tender their shares before Friday.
The $24 price set by Oracle—a price the company called its "best and final" offer—could well mark the end game. After earlier making earlier offers ranging as high as $26 per share, the database giant has said it's ready to abandon the battleground and move on if 50 percent of the shares aren't tendered.
That would mark a striking reversal from months of Oracle's bravado and a comedown from a series of key victories for the company. Last month, European regulators ruled in favor of the takeover effort, and a month earlier, a U.S. court sided with Oracle in its legal set-to with the Justice Department.
Now it's up to investors.
Private Capital Management says it sees Oracle's current offer as undervaluing PeopleSoft, according to a filing Tuesday with the Securities and Exchange Commission. The group has more than 35 million shares, or a 9.3 percent stake in PeopleSoft.
"We have had many discussions with shareholders, and in those discussions, many have said they do not believe $24 is an adequate price but that they still plan to tender," said Steve Swasey, a PeopleSoft spokesman. "Shareholders tender for a variety of reasons."
A representative for Capital Guardian declined to comment, but Oracle was quick to do the talking.
"Oracle has learned that Capital Guardian Trust Co. on behalf of its client accounts has decided to tender its shares," Jim Finn, an Oracle spokesman, said in a statement.
Proxy solicitors say it's common to see investors tender their shares in a hostile takeover bid, even though they do not favor the current price offered. They note that investors hope to keep the game in play with the belief that a higher price will be offered shortly before the annual shareholders meeting, in which the buyer hopes to elect its own opposition slate of board members. That opposition slate, if elected, will then often remove anti-takeover measures, such as a poison pill.
Private Capital Management said in the SEC filing that it "has significant concerns as to whether the revised offer fully reflects the value PeopleSoft shareholders may realize over the intermediate term from PeopleSoft's continued operation as an independent company."
The investment adviser, however, left open the possibility it could yet tender its shares should Oracle offer a higher price.
"PCM does not express any view as to whether it would tender shares in response to an offer by Oracle other than the revised offer," according to the filing.
In hostile takeover battles, investor camps sometimes will emerge and go public with plans on how they will vote on the deal, in part as a means to sway more investors to their side.
Chad Atkins, an attorney for Private Capital Management, declined to comment on the filing.
Assessing the risk
Proxy solicitors said the disclosure by Private Capital Management is not an uncommon move in tender offers. However, it is risky.
"Anytime an institutional investor goes public at this point, it's fraught with risk," said Rick Grubaugh, senior vice president of proxy solicitation firm D.F. King & Co. "Usually, institutions want to keep the ball in the air as long as possible, in the hope there will be a bigger payday later on."
But he noted that institutional investors also want to see any increase in an offer sooner rather than later because it minimizes the risk in holding a particular stock.
One proxy solicitor, who asked to remain anonymous, said Private Capital Management may want Oracle to walk away from the deal at $24. If it did so, arbitrage investors would likely dump PeopleSoft's stock in the ensuring weeks, lowering the company's share price. And at that point, the investment group may want to step in and increase its PeopleSoft stake.
Shares of PeopleSoft were up in early trading on Monday, rising 18 cents to $22.72 a share.
While industry watchers and investors may have believed strongly that Oracle will prevail with its tender offer, the announcement by Private Capital Management brings uncertainty into the market.
"It's down to the wire," said Charles Di Bona, an analyst with Bernstein & Co. "It's like staying up all night and watching the presidential elections. You don't know how it will go."