PLEASANTON, Calif. – In a surprise move, business software maker PeopleSoft Inc. (PSFT) fired CEO Craig Conway, dumping the feisty leader who engineered the company's dogged resistance to Oracle Corp.'s (ORCL) $7.7 billion takeover bid during a 16-month melodrama.
Just a few hours after PeopleSoft disclosed Conway's ouster, the Justice Department (search) said Friday that it won't appeal a court decision removing an antitrust hurdle to Oracle's offer.
Taken together, the news convinced many analysts that PeopleSoft is clearing the decks for an Oracle takeover.
"This thing is over," said analyst David Hilal of Friedman, Billings, Ramsey & Co. "PeopleSoft is going to be sold. The only question is timing and price."
Investors are betting Oracle will sweeten its all-cash offer of $21 per share. Redwood Shores-based Oracle has offered as much as $26 per share for Pleasanton-based PeopleSoft.
PeopleSoft's shares surged $2.97, or 15 percent, to $22.82 in Friday's trading on the Nasdaq Stock Market (search), where Oracle's shares climbed 61 cents, or 5.4 percent, to $11.89.
But Oracle has been dropping hints in recent weeks that it might not be willing to raise the ante because of possible liabilities created by defensive actions taken by Conway and PeopleSoft's board.
Oracle chairman Jeff Henley reiterated the company's belief that the actions of PeopleSoft's board "have seriously damaged, and continue to damage, shareholder value." Henley didn't mention Conway's firing, but said Oracle is pleased the antitrust case won't be appealed.
PeopleSoft's board replaced Conway with its chairman and founder David Duffield, who also is the largest shareholder. The board appointed chief financial officer Kevin Parker and Phil Wilmington, the company's top sales executive, as co-presidents.
The board dumped Conway in a meeting late Thursday night, according to Skip Battle, a PeopleSoft director who heads the committee that made the decision.
"Over time, the board has become increasingly concerned with Craig's leadership," Battle told analysts during a Friday conference call. "There is no smoking gun. It was a matter of the board losing confidence in Craig and when that happens a decision has to be made."
Pressed by analysts, Battle declined to elaborate.
The shakeup comes before Oracle intends to attack the integrity of Conway and PeopleSoft's board in a trial scheduled to start Monday in Delaware. In its pretrial brief, Oracle indicated that the company will submit evidence depicting PeopleSoft's board as an irresponsible clique dominated by the irascible Conway.
Oracle indicated that it still plans to call Conway to the witness stand as part of its effort to invalidate PeopleSoft's antitakeover defenses. The measures include an unusual sales program that has guaranteed $2 billion in customer refunds if PeopleSoft is acquired and the new owner diminishes product support.
PeopleSoft announced Conway's firing along with a pleasant surprise — sales of new software licenses for the just-completed third quarter exceeded $150 million, much higher than analysts anticipated.
Hilal said it makes no sense to jettison Conway after such a strong quarter unless the board wanted to ease the tensions with Oracle.
Battle insisted Conway's firing had nothing to do with PeopleSoft's attitude toward Oracle's bid.
Hired five years ago to replace Duffield as CEO, Conway had been staunchly fighting to keep PeopleSoft out of Oracle's clutches. Almost as soon as the company launched its hostile takeover attempt, Conway dug in his heels, describing the bid as "atrociously bad behavior" while lambasting Oracle CEO Larry Ellison (search) as a sociopath.
Conway formerly worked under Ellison at Oracle, a dynamic that spiced the soap opera that has riveted Silicon Valley.
Ellison has made it clear he couldn't wait to fire Conway in an Oracle takeover.
With Conway's job looking shaky, PeopleSoft's board improved his severance package eight months ago. The deal, which awards Conway two times his salary and vests millions of stock options, could be worth $50 million to $60 million if PeopleSoft is sold to Oracle.
Oracle's bid received a major boost three weeks ago when a federal judge rejected an attempt to block the proposed deal for competitive reasons.
That prompted many shareholders to begin pressuring PeopleSoft to open talks with Oracle, but Conway had held out hope the Justice Department might appeal — an option that evaporated Friday.
With Conway gone and the company coming off a surprisingly strong quarter, "many shareholders seem to believe PeopleSoft's board will now have the leverage to get a higher price," said American Technology Research analyst Donovan Gow.
But Gow still suspects Duffield, who founded PeopleSoft in 1987, might have reservations about selling to his company's fiercest foe.
"PeopleSoft is Dave Duffield's baby," Gow said. "He may be just as adamant as Conway" about fending off Oracle.
Duffield, 64, has been in semiretirement since turning over the reigns to Conway in 1999, but he told analysts he is ready to get back to work. He will be paid $1 per year. Most of his wealth is tied up in his ownership of roughly 27 million shares, worth about $600 million at Friday's price.
"I'm here for the long term," Duffield said. "I'm totally energized. I think it's going to be a very fun exercise and good for shareholders."
Duffield is revered by much of PeopleSoft's work force, which has become increasingly demoralized as an Oracle acquisition has become more likely. Oracle has indicated it will fire more than half of PeopleSoft's 11,500 employees in a takeover.
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