8 July 2004 PeopleSoft, the world’s number two business applications vendor, has issued a profits warning for its second quarter, citing Oracle’s on-going hostile takeover bid for the company as the main reason for its underperformance.
PeopleSoft said it expects to post licence sales of between $129 million and $133 million for the three months ending 30 June. That compares with average software licence sales of $159 million in its previous three quarters.
As a result of the slowdown, the company lowered its forecast for total revenue for the period by $27 million to $37 million, suggesting revenue of between $655 million and $665 million.
PeopleSoft CEO Craig Conway blamed the weaker numbers on the uncertainty resulting from Oracle’s courtroom fight to overturn the US Department of Justice’s decision to block on the takeover.
“Although we have been able to meet or exceed our financial projections since Oracle launched their hostile tender offer more than a year ago, the extensive publicity of the antitrust trial during the last month of our quarter was impossible to completely overcome,” said Conway.
But some analysts suggested that another reason for PeopleSoft’s revised forecast might be problems with the integration of JD Edwards, the rival applications software company it acquired for $2 billion in July 2003 – only a month after Oracle launched its bid.
The lowering of expectations is likely to work in Oracle’s favour – assuming it wins its court case. In May, Oracle lowered its offer from $9.4 billion to $7.7 billion to reflect PeopleSoft’s declining stock price.
And the latest profits warning may trigger a further price change. PeopleSoft’s stock is currently valued at about 20% below Oracle’s current bid of $21 per share, indicating that most investors do not expect the merger to go through because of antitrust concerns.
The full quarterly results are due to be released on 27 July.
In a meeting with Oracle number two Chuck Phillips, three weeks after the announcement of the bid in late June 2003, Kumar – a veteran of scores of acquisitions – counselled Oracle that it should play down its proposal to discontinue PeopleSoft product lines if the bid was successful.
An Oracle memo detailing the meeting read: “[Kumar] said he would have the same plan post-acquisition, but just would not have said so up front. ‘Everyone knows but you can’t say it and freak out the customers up front,’ [he said].”