PeopleSoft vs. Oracle - Research Paper Example

PeopleSoft is a software developer that specializes in Enterprise Resource Planning (EPR) software. The firm is one of the industry leaders in this segment of the software industry. The company was currently in the process of acquiring J.D Edwards. The new acquisition would give the company a total market share of 15% which was higher than the 13% market share that Oracle had. Oracle did not take the news of the J.D. Edwards and PeopleSoft union lightly as the firm decided to place a hostile takeover bid on PeopleSoft.

A hostile takeover can be defined as, “The acquisition of one company by another that is accomplished not by coming to an agreement with the target companys management, but by going directly to the company’s shareholders or fighting to replace management in order to get the acquisition approved” (Investopedia, 2012). The hostile takeover bid of the company was unusual due to the fact that the company had no interest in the product or services that PeopleSoft offered. Instead Oracle was solely interested in the customers of PeopleSoft.

The plan of Oracle was to convert all the customers of PeopleSoft into its EPR system. Another unusual aspect of the original offer was that it was only 6% above the market value of the firm. Typically most hostile takeover bids are at least 20% above the market value. It seemed as if Oracle was taking a huge gamble in this takeover offer since the firm was not going to utilize the intellectual property of PeopleSoft to its advantage. The plan of Oracle was to increase its market share by eliminating its top competitor.

The conditions that needed to be met for the independent boards of directors to determine if the sale of the company was in the best interest of the company was whether the hostile takeover bid maximizes the shareholders wealth. The initial offer was so low that there was no reason for the company to accept it since the bid was undervalued in comparison with other hostile takeovers of publicly traded companies. Even though the primary focus of the board should be the shareholders, the interest of other stakeholders of the company such as the employees and the customers were also important.

Based on Oracle’s plan some of the negative consequences included mass firing of employees due to downsizing and a deterioration of customer relations. PeopleSoft had in its bylaws a poison pill to protect itself against hostile takeovers. The poison pill was a bylaw that stated that the company had the ability to release more shares in order to dilute the shares of the company taking over once that company controlled more than 20% of the shares of PeopleSoft. The only way to eliminate the poison pill was if the board of directors approved its elimination.

Another factor that negatively impacted Oracle was the legal actions that J.D Edwards took against Oracle in the form of a lawsuit. In the end Oracle was able to take over PeopleSoft, but it cost them twice as much as the original bid of $5 billion dollars. ReferencesInvestopedia.com (2012). Hostile Takeover. Retrieved August 7, 2012 from http://www.investopedia.com/terms/h/hostiletakeover.asp#axzz22txUkj76