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During a scheduling hearing yesterday, the judge overseeing Oracle's attempt to overturn PeopleSoft's takeover defenses said he wants to know exactly why PeopleSoft has turned down Oracle's offer again.

See, Oracle raised its bid from $21 a share to $24 after the trial in Delaware Chancery Court, where the companies came closest to doing any real dickering.

Vice-chancellor Leo Strine Jr said he wanted to understand "the reaction of the PeopleSoft board to the unconditional offer and Oracle's application to enjoin the application of the rights plan to that offer."

That will mean additional testimony and perforce push the judicial proceedings in Delaware into December. Strine will hear that testimony along with some more on PeopleSoft's novel customer rebate defense on December 13 and 14.

PeopleSoft's board unanimously rejected Oracle's so-called "best and final" $24-a-share offer again as inadequate after PeopleSoft shareholders tendered Oracle 61% of the company's stock Friday night.

In a letter to Oracle CEO Larry Ellison and Oracle chairman Jeff Henley on Saturday afternoon, the board said, "We would be willing to discuss an offer made by Oracle at an appropriate price - but $24 is not that price."

The board said - based on the company's performance and outlook - it wants "materially" more than Oracle's previous $26-a-share offer. There have been rumors that PeopleSoft's dream number is $35 a share.

Skip Battle, one of PeopleSoft's outside directors and the head of the Transaction Committee the board set up to deal with Oracle, told Ellison and Henley that "If Oracle is prepared to offer an appropriate price that reflects both PeopleSoft's intrinsic value and our value to Oracle, please contact me directly."

Oracle didn't bite.

 Vice Chancellor Leo E. Strine Jr. (left) returning to the Delaware Chancery Court after lunch
(Wilmington, Delaware, October 6, 2004)  Photo Copyright: SYS-CON Media

It has to hang tough, observers say, or risk looking like it can be had to other potential acquisitions. It may simply walk away, a move that could shear a third off PeopleSoft's stock price.

The Wall Street Journal claimed that PeopleSoft persuaded some large investors to withdraw the stock they tendered to Oracle before the Friday deadline to reduce Oracle's margin of success and increase the pressure on Oracle to up its bid.

However, Oracle only figured 70% of the company was in play. The other 30% belongs to insiders or retail investors.

In response to the board's rejection, Henley wrote back Sunday evening saying, "We are obviously at an impasse."

He said PeopleSoft was only worth the $21 a share Oracle previously had on the table and that it should think of that extra three bucks as gravy. He said Oracle couldn't understand how the board could think the company could be worth more.

"As many analysts have noted," he wrote, "in February 2004, the company's earnings expectations for FY 2004 were significantly higher than today's outlook for FY 2004 and the same as your new revenue for all of FY 2005."

Henley called PeopleSoft's new FY 2005 guidance "not credible" on Wall Street. "Just as your FY 2004 guidance was manufactured as a basis to oppose our previous offers - and was, in fact, not achieved - your new guidance is equally not credible and appears to be little more than an attempt to justify opposing our current offer."

Contrary to PeopleSoft's claim that the "majority" of its largest stockholders, including folks who tendered their shares to Oracle, felt Oracle was undervaluing the company, Henley observed that it looks like a third of PeopleSoft's stock was sold off in the days leading up to Oracle's Friday deadline at prices ranging between $22.50 and $23, "materially below $24 per share."

Henley claimed the tender results constituted a mandate and asked the PeopleSoft board to drop its poison pill before the Chancery Court in Delaware makes a decision and avoid a protracted proxy fight.

Observers think the Delaware decision won't go in Oracle's favor, catapulting the situation, if Oracle sticks to its guns, into a fight for control of PeopleSoft's board at the company's next annual meeting this spring.

On the other hand, the judge could theoretically get the sides to negotiate.

Oracle can take comfort from the fact that Wednesday Vice-Chancellor Strine refused PeopleSoft's request to delay taking new evidence in the case until next year when its annual meeting, set for the spring, is in sight in case this thing escalates into a proxy fight

PeopleSoft also wanted him to hold off taking new evidence on the customer rebate scheme so it could close critical fourth-quarter deals without the possibility of a court ruling inserting uncertainty into the negotiations.

Of course there's no indication when he might rule.

Oracle can't actually acquire the tendered shares without triggering the poison pill, which would flood the market with new PeopleSoft shares.

Oracle is supposed to have its slate of alternate directors nominated by Thursday. Meanwhile, it has extended the tender offer yet again to December 31.

Prudential thinks Oracle's going to win in the end but warns that "Oracle has never done an acquisition this large, and it will surely face significant hidden costs that are not embedded in even the most conservative forecasts."