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Oracle stands by PeopleSoft deal

In a conference call, Oracle reaffirmed its commitment to the takeover and questioned the impact of PeopleSoft's customer rebate plan.

During a conference call today, Oracle Corp. reaffirmed its commitment to acquiring rival enterprise software vendor PeopleSoft Inc.

"There's been a lot of ink spilled over our bid for PeopleSoft," said Chuck Phillips, an executive vice president at Oracle. "We remain committed to acquiring PeopleSoft. There is no merit to the proposition that the deal is dead."

Phillips criticized the impact of PeopleSoft's customer assurance program on quarterly earnings. He also criticized the company for changing the guidelines for what would trigger a refund. PeopleSoft recently amended the plan to prevent refunds from taking effect if control of its board changes without an acquisition.

The plan, instituted in June, guarantees customer rebates of two to five times software license fees if the company is acquired and its products discontinued. The program will run through Dec. 31, and it would make an Oracle takeover significantly more expensive.

"We don't know of any precedence of this sort of program," said Jeff Henley, Oracle's chief financial officer.

Safra Catz, an executive vice president at Oracle, said she's confident that both the U.S. Department of Justice and the European Union Commission will approve the merger, and she said she expects a decision from both agencies in January.

Drew Brosseau, a financial analyst with SG Cowen Securities Corp., New York, wasn't as confident about approval from the Department of Justice. Brosseau said it's still a toss-up.

"[Oracle is] pointing out what I think are legitimate questions about contract changes," Brosseau said. "They're obviously trying to raise questions to push down the [PeopleSoft] stock. What PeopleSoft did with the customer assurance program and the changing of the language raises legitimate questions about revenue recognition and liabilities for them."

When asked whether Oracle would challenge the Department of Justice should the takeover fail to receive regulatory approval, Catz said simply, "We remain committed to following this through to the end."

Oracle executives also maintained their position that the merger is good for customers, shareholders and competition.

According to Phillips, PeopleSoft customers will benefit from the increased resources of the combined company, access to Oracle's worldwide support network, increased vertical functionality of the combined products, free module-to-module upgrades to Oracle's E-Business Suite, world-class outsourcing and increased investment in the products.

Despite Oracle's renewed commitment to the takeover, the company faces some other hurdles. PeopleSoft stock was trading at $21.78 today, well above Oracle's latest offer of $19.50 per share.

Additionally, Oracle faces legal challenges from both PeopleSoft and some of its customers, including the state of Connecticut.

Phillips also mentioned that PeopleSoft is not the only company Oracle is considering acquiring, and he characterized this takeover as a "medium to small transaction, in the scheme of things."

"We expected this to take time," Phillips said. "The passage of time doesn't affect us in any way; it factored in our thinking. In fact, time is on our side."


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