Will a White Knight Save PeopleSoft from Oracle?

As investors awaited a ruling in the antitrust suit of PeopleSoft against hostile takeover bidder Oracle, rumors circulated that a white knight bidder may emerge, kicking Oracle and its persistent pursuit of PeopleSoft to the curb.

Among the rumored third bidders are IBM, Microsoft, and the German firm SAP.

IBM Denies Interest

IBM spokesperson Scott Cook denied IBM’s interest in PeopleSoft: “Based on our current strategy, we have no plans to get into the applications business.”

A white knight bid would differ from that made by Oracle, a hostile bidder. The white knight bid is a friendly bid that follows a hostile bid.

The average lag between the hostile bid and the white knight bid is 27 days, according to research by James Owers, professor of finance at Georgia State University, Atlanta. The time — more than a year — that has ticked away since Oracle first made a push for PeopleSoft may mean that the targeted company has met with a third bidder and discussed being acquired.

A Long Affair

Oracle has extended its $7.7 billion bid for PeopleSoft 10 times since June 2003, awaiting regulatory approval.

The Associated Press reported that a decision from U.S. District Court Judge Vaughn Walker in San Francisco could come as soon as this week.

Oracle offer stands at $21 per share. With talk of a white knight bidder and PeopleSoft shares at $17.70, Georgia State’s Owers said the market is assuming that Oracle will not receive approval for its bid.

Third parties or subsequent bidders could then emerge with a $19 or $20 bid.

Bargain Price for PeopleSoft?

A second bidder “has lost the strategic benefit present at the beginning of the auction, but PeopleSoft stock has dropped,” Owers said. “A new bidder could come in with a much lower bid now than if it had followed directly on the heels of Oracle.”

Subsequent bidders are unlikely to emerge this week. Owers said it’s too late for a Microsoft or SAP to bid on and buy PeopleSoft before the ruling. Plus, if the judge comes down with a decision to the detriment of Oracle, it would be better for the new bidder to wait, he said.

A negative ruling for Oracle will drop the stock price of PeopleSoft even lower in the short term, Owers added.

Microsoft and SAP

As for which of the rumored bidders may make an offer for PeopleSoft, Owers says both Microsoft and SAP are credible candidates, although SAP may find some of the same pressure from antitrust regulators that Oracle has encountered in its bid for PeopleSoft.

“Microsoft has been thinking of buying SAP,” commented Owers. “Given that it is not already in that business [of enterprise applications], there is much less of a probability of an antitrust inquiry. Microsoft in the position and certainly has the resources to buy PeopleSoft.”

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