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PeopleSoft offers refunds in event of Oracle takeover

PeopleSoft has promised to refund some new or upgrading customers if it is acquired and the products they purchased are discontinued, sources have claimed.

The refund strategy is seen as an attempt by PeopleSoft to keep concerned users from delaying software purchases because of Oracle's hostile bid. It could also serve as a "poison pill" takeover deterrent.

The takeover battle intensified last week as Oracle increased its offer to $6.3bn, and PeopleSoft and JD Edwards amended their merger agreement in an effort to speed up that deal.

On 9 June, the same day Oracle launched its hostile bid, PeopleSoft sent a letter to a potential customer which included a contractual offer to pay the user twice the cost of its software licences. The payment would be triggered should PeopleSoft be bought within a year and if, within two years, the new owner drops the purchased applications or sets plans to stop supporting them.

PeopleSoft declined to comment about the letter and said it did not discuss customer contracts publicly. But a spokesman confirmed that PeopleSoft has initiated "a prudent response to Oracle's attempt to disrupt our business", adding that PeopleSoft is taking steps "to protect our customers' investments and our market position".

PeopleSoft and JD Edwards users alike have said that they may put off software purchases until the buyout fracas is resolved.

Joshua Greenbaum, an analyst at Enterprise Applications Consulting, said he was unconvinced that the refund deals would persuade users to go ahead with purchases. He said licence fees typically amount to only 10% to 15% of the total cost of ownership for business applications.

The refund offer is at least in part meant to "thwart Oracle's efforts", he added, stressing that its real purpose was to close deals to make its numbers.

Oracle declined to comment about the refund offers, but it made clear that it plans to push ahead with the takeover bid, increasing its original $5.1bn offer and filing a lawsuit against PeopleSoft, its board and JD Edwards. Oracle's suit is one of a flurry of legal actions involving the three suppliers and a PeopleSoft user.

Oracle's latest offer makes the proposed buyout "a viable deal", said Barton Goldenberg, a CRM software analyst at consulting firm Information Systems Marketing. However, he predicted that PeopleSoft stockholders would still reject it.

PeopleSoft's board of directors rejected the new offer on 20 June and urged stockholders to do the same.

PeopleSoft and JD Edwards changed their acquisition deal from an all-stock transaction to one, which includes a cash payment of $863m and a total value of $1.75bn, eliminating the need for PeopleSoft's shareholders to vote on the proposed merger, which Oracle has said it would reassess if it buys PeopleSoft.

Marc L Songini writes for Computerworld


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