Oracle May Lower Bid for PeopleSoft

Oracle Corp. (ORCL) CEO Larry Ellison (search) testified Friday that the business software maker is leaning toward lowering its $7.7 billion bid for rival PeopleSoft Inc. (PSFT), a shift that might create another snag in the takeover tug-of-war.

Taking the witness stand in a trial contesting PeopleSoft's antitakeover defenses, the mercurial Ellison indicated that Oracle isn't certain Peoplesoft is worth the $21-per-share price currently on the table.

The Redwood Shores, Calif.-based company has had "more discussions about lowering price than raising the price," Ellison said.

His comments came just three days after PeopleSoft director Steven Goldby delivered testimony signaling his company's willingness to end its 16-month fight against the hostile takeover bid and negotiate a sale if Oracle sweetens the offer.

Investors have anticipating a higher bid since PeopleSoft fired Craig Conway (search) as CEO last week. Conway had stridently opposed Oracle's overtures.

The prospect that Oracle might instead lower its offer rattled investors. After Ellison's remarks were first reported, PeopleSoft's shares plunged by as much as $1.28 before rebounding to close at $21.95, down 58 cents, on the Nasdaq Stock Market.

The recovery reflected a realization that Ellison's testimony might be a strategic move in a corporate chess game as Oracle tries to minimize its takeover expense while PeopleSoft's board maneuvers for a higher price, said American Technology Research analyst Donovan Gow.

Berkeley, Calif. software industry consultant Joshua Greenbaum agreed, predicting it's only a matter of time before Oracle and PeopleSoft set aside their differences to negotiate the final sale price.

"I can't even imagine a scenario where this deal doesn't get done," Greenbaum said. "There is just too much at stake. Oracle really needs this acquisition and PeopleSoft really needs a partner to survive."

In his Friday testimony, Ellison acknowledged that "acquiring PeopleSoft is very, very important for Oracle's future."

Since its initial offer of $16 per share, Oracle has revised its bid three times. The last change came in late May when Oracle dropped the all-cash bid from $26 per share to the current offer, contending that PeopleSoft has become less valuable as its sales have sagged and the company's management made new financial promises to employees and customers that could make a takeover more expensive.

Pleasanton, Calif.-based PeopleSoft contends a surprisingly strong performance in its latest quarter proves the company is worth more than $21 per share.

Oracle is trying to convince a Delaware Chancery Court to remove two antitakeover defenses that PeopleSoft has employed to stop Oracle's bid. PeopleSoft is fighting to preserve them.

Friday marked the second time in a slightly more three months that Ellison — one of the world's richest men — has appeared in a courtroom to defend Oracle's bid for PeopleSoft.

Ellison previously testified in San Francisco during an antitrust trial that culminated in a pivotal ruling that concluded a combination between Oracle and PeopleSoft wouldn't damage competition in the business applications software market.

As he did in the San Francisco trial, Ellison eschewed his usual mock turtleneck Friday, wearing a suit and tie to court instead. His mostly straightforward testimony rehashed much of the terrain he covered during the San Francisco trial, including a recount of previous merger talks that took place between Oracle and PeopleSoft in 2002 — a year before the current takeover saga began.

Oracle launched the hostile takeover in June 2003 because it suspected PeopleSoft was trying to hide continuing business weakness behind its recent takeover of J.D. Edwards.

Merger accounting can camouflage bad results for a time, Ellison said, and Oracle suspected that PeopleSoft hoped to mask its troubles by buying J.D. Edwards.

Ellison also depicted Oracle's bid as a good-faith offer, a stark contrast to Conway, who attacked the takeover attempt as a sinister plot to destroy PeopleSoft. Ellison accused Conway — once his subordinate at Oracle — of engaging in "scare tactics" that misled PeopleSoft's customers to help fight off Oracle's advances.