Oracle Corp could reduce its offer for PeopleSoft Inc by as much as a third, to $2.5 billion or $14 a share, to reflect declining performance at the rival company, an Oracle executive reportedly testified yesterday.
Oracle co-president Safra Catz, during the sixth day of the Oracle-PeopleSoft trial in Wilmington, Delaware said that the company has considered lowering its $7.7 billion $21 a share offer by between a quarter and a third.
She said that PeopleSoft’s business is doing quite poorly, and that she expects the company to miss estimates when it reports its last quarter. She pointed to the fact that PeopleSoft stopped issued revenue guidance earlier this year.
Catz said she currently expects PeopleSoft to report full-year 2004 earnings per share of between $0.59 and $0.61. That would be a decline from the about $0.85 per share that Oracle anticipated at the start of the year, when its bid was up to $26.
The testimony followed similar comments from her boss Larry Ellison on Friday. Ellison testified the bid was more likely to go down than up, but did not specify the extent. A day earlier, an Oracle director said the bid could move, but did not say which way.
It appears that the market did not believe Catz. PeopleSoft’s share price declined somewhat yesterday, but at $21.83 at yesterday’s close, still stands at a premium to the $21 a share offer currently on the table.
PeopleSoft lawyers reportedly suggested that Oracle is using the courtroom to make comments it hopes will drive the price down. The fact remains, however, that PeopleSoft’s business has taken a bit of a battering this year.
In the second quarter the firm reported revenue of $647 million, $42 million shy of its target, and pro forma earnings per share of $0.14, seven cents short of its goal. The irony, of course, is that PeopleSoft has been missing targets in part because of Oracle.
In July, then-CEO Craig Conway said closing deals became tough due to documents filed as evidence in the Oracle-DoJ antitrust trial in June, which revealed the steep discounts both Oracle and PeopleSoft are prepared to offer.
Companies were armed with all of our discount forms, Conway, who has since been dismissed, said at the time, blaming a combination of global factors such as war and Oracle-specific factors for the revenue miss.
Oracle, which also disclosed during the antitrust trial that enterprise applications is a buyers’ market and discounts as steep as 70% and above are available, has also been seeing its application business slide this year.
While its overall growth has been healthy due to good sales in its core database software business, Oracle saw new apps licenses down 6% in its May quarter and application revenue decline 9% in its August quarter.
Oracle is suing PeopleSoft to get its poison pill shareholder rights plan and customer refund program, two of the last barriers to an acquisition, overturned. The European Commission is going to approve or block the merge within a month.