Internal e-mails show Oracle aimed its takeover bid in part to sow doubt about PeopleSoft.
October 6, 2004, 10:12 AM PT
Three days before Oracle publicly announced its intention to buy PeopleSoft, the deal was already viewed as a way to sow seeds of doubt in the minds of PeopleSoft customers.
Mark Jarvis, who was Oracle's chief marketing officer at the time, suggested in an internal June 3, 2003, e-mail that the company "use this news in order to create FUD with prospects and customers alike." FUD is a common term in the computer industry that describes a campaign to spread misinformation or exaggerations.
Jarvis' e-mail, sent before the hostile takeover was revealed on June 6, 2003, came from the marketer once billed as Oracle CEO Larry Ellison's right-hand man. Jarvis has since left the company.
CNET News.com has reviewed a confidential court document that includes excerpts of Jarvis' e-mail and other Oracle documents that mention FUD. A June 2003 memo with no author listed, for instance, instructed Oracle salespeople to exploit the acquisition to "create FUD (fear, uncertainty and doubt) with prospects and customers alike as they understand the implications of this acquisition."
Portions of the potentially embarrassing documents could emerge in the latest court case pitting the two influential software companies against each other. Oracle is suing PeopleSoft in Delaware's Court of Chancery to eliminate antitakeover defenses including a "poison pill" agreement designed to keep the company independent.
PeopleSoft has argued that Oracle is not serious about completing the $7.7 billion acquisition and instead has wielded the offer to cast doubt on the future of the world's second-largest provider of enterprise application software and encourage customers to consider rival products. As soon as the Oracle offer was public, PeopleSoft has claimed in court filings, its salespeople "encountered palpable resistance among previously enthusiastic prospects" because of fears that some products would be discontinued.
The internal documents were excerpted in Oracle's Aug. 6 response to "interrogatories" from PeopleSoft. Interrogatories are a standard way to obtain information from an opposing party in a lawsuit. PeopleSoft had originally cited the excerpts when asking "what is meant by Oracle's stated objective to create fear, uncertainty, and doubt in connection with the tender offer." In its written reply, Oracle said its intention when making the offer was simply "to acquire 100 percent of the outstanding voting shares of PeopleSoft."
Oracle's reply to PeopleSoft's interrogatories was provided by the Delaware court clerk's office. Brock Czeschin, an Oracle attorney at Richards Layton & Finger, specified in an accompanying letter that nine sections of the reply were "Highly Confidential--Attorneys' Eyes Only" and must be removed before the reply was made available to the public. However, the document provided by the Delaware court and reviewed by CNET News.com was not redacted.
Another excerpt included in the PeopleSoft interrogatory and Oracle's reply was an e-mail message sent by Keven Blake to Oracle President Charles Phillips and others on Sept. 10, 2003. It said that "(we) have successfully spread enough FUD along with our own capabilities to have a good average shot at winning."
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Oracle spokeswoman Jennifer Glass said Tuesday that the company will not "comment on the documents in question." Glass pointed to a recent statement from Oracle's Phillips saying: "We believe that the combined companies will provide customers with superior benefits and a stronger long-term alternative." A PeopleSoft representative did not respond to an interview request.
Mark Ostrau, a partner at Fenwick & West in Mountain View, Calif., said that the FUD documents alone do not prove that Oracle's offer for PeopleSoft was prompted by any ulterior motive that would have a legal impact. It would be more interesting to review early correspondence between executives and board members while the purchase was being contemplated, Ostrau said.
"You could read these (documents) either way," said Ostrau, who has represented PeopleSoft in the past but is not involved in the current litigation. "It's either following up on the grand sinister plan, or it's some enterprising salespeople trying to capitalize on it. It's aggressive behavior but not a smoking gun."
Whether caused by an orchestrated FUD campaign or the simple fact that Oracle's bid cast legitimate doubt on PeopleSoft's future, it's clear that PeopleSoft has suffered.
The company has taken a hit on revenue and profits since Oracle launched the bid, missing analyst projections for the first half of the year and warning it's unlikely to meet full-year earnings targets. News this week that PeopleSoft expects to report third-quarter revenue growth was tempered by lower-than-expected profit. PeopleSoft shares closed Tuesday at $22.83, up from a 52-week low of $15.39.
FUD's long history
The concept of FUD enjoys a venerable history in the computing field. According to The Jargon File, an online dictionary of hacker slang, Gene Amdahl used the term as an attack on IBM after he left in the early '70s to found his own company: "FUD is the fear, uncertainty and doubt that IBM salespeople instill in the minds of potential customers who might be considering (Amdahl) products."
In a 1995 case pitting Addamax against the Open Software Foundation and Hewlett-Packard, Addamax claimed that the defendants used FUD to paralyze the industry and unreasonably raise customers' fears. One internal HP memo cited in that case was titled "Impact of FUD on Sun" and discussed ways to sabotage the AT&T-Sun Microsystems operating system by describing it as "nonstandard."
FUD also was used by cryptographers in the 1990s to scare politicians about criminals using data-scrambling encryption products to cloak their communications. More recently, the term has cropped up in the Microsoft and Linux war, with free software advocates using it to describe disinformation they say SCO Group and Microsoft have spread about the merits of software other than Windows.
Even Microsoft has been known to charge others of spreading FUD, an allegation that it made last September when complaining about software patents.
Unintentional disclosures have been a problem in the Delaware case before. Donald Wolfe, an attorney for PeopleSoft, wrote a letter to Judge Leo Strine on Sept. 21 saying he had no idea how the press had learned of a conference call a week earlier between the judge and the lawyers involved in the case.
"I personally do not believe that anyone on the PeopleSoft team would have had reason to regard disclosure of either the scheduling or the purpose of the conference as having any value to the company from a public relations standpoint," Wolfe wrote. "Nonetheless, if Your Honor would like me to pursue this further, I will certainly do so."
Other disclosures in Oracle's response to the interrogatories say that:
"No proposals have been made" by Oracle to condition its PeopleSoft offer on eliminating its customer assurance program, which offers customers a money-back guarantee if the company is purchased.
Oracle first learned of the Justice Department's staff recommendation to file suit to block the proposed merger on Feb. 10, one day before the news was made public.
Oracle's general counsel has sent the Securities and Exchange Commission a series of letters about the customer assurance program saying it "may negatively affect PeopleSoft's ability to recognize revenue on the contracts containing those terms."
Oracle's board and representatives of Credit Suisse First Boston worked closely when revising the prices the company had offered to pay for PeopleSoft shares. Oracle executives spoke "with the holders of a majority of PeopleSoft shares" around June 18, 2003, before upping the price. They raised it again in February 2004, because "Oracle believed an increased bid would aid in its efforts to wage a successful proxy contest."
CNET News.com's Alorie Gilbert contributed to this report.