Oracle Corp's hostile US$7.7 billion bid for rival software maker PeopleSoft Inc could drop by one-third to one-fourth, Oracle co-president Safra Catz said Monday.
Catz cited PeopleSoft's 2004 performance as the chief reason for what she said is likely to be a decline from the current US$21-a-share offering price.
"The direction is down significantly," she said in response to questions from her own lawyers in a Delaware courtroom. Catz's testimony came at the start of the second week of trial of Oracle's legal challenge to PeopleSoft's antitakeover defenses, as the 16-month long acquisition attempt continues.
Deal strategy?
A lawyer for PeopleSoft suggested that Catz's statements and those from other Oracle executives were part of a continuing effort to use the ongoing trial as a platform to drive the deal price down.
Oracle's chief executive Lawrence Ellison took advantage of his turn on the stand last week to warn PeopleSoft shareholders that the offer on the table was likely to be replaced with a lower number.
Under cross-examination by PeopleSoft's attorney, Catz admitted that, prior to the trial, Oracle had made no public statements about the dimensions of a drop in the offering price.
However, in a recent press release, Oracle said it was taking into account specific liabilities that PeopleSoft was adding in evaluating the deal, Catz said.
New financial models
Catz said new financial models are being run. The last models, done in January, expected PeopleSoft to earn about US$0.85 a share this year.
At that time, the offering price was US$26 per share. No new models were done when Oracle dropped its offer to US$21 per share in May, according to Catz.
So far, she said, her sense is that PeopleSoft's 2004 earnings will be "US$0.60, US$0.59, US$0.61" a share. PeopleSoft seems to be doing "quite poorly" in 2004, she said, and is no longer issuing guidance to let analysts know what earnings are projected.
New liabilities
Among the specifics figuring into the new deal calculations are liabilities attached to a special customer program that is one of the PeopleSoft defenses at issue in the lawsuit, she said.
PeopleSoft has put on evidence it says showed Oracle has pursued a strategy of capitalizing on the takeover battle in an effort to keep the target's share price down.
But presentations to Oracle's board and assessments by investment bankers contain no references to PeopleSoft as a distressed company, said PeopleSoft attorney Matthew Fischer.
He showed Catz an Oracle analysis in April 2003 that concluded that a US$23.76 per share offer for PeopleSoft would still be accretive.
She said the analysis was "just a discussion point."
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