When No Really Doesn't Mean No

After 18 months of playing hard to get, business software maker PeopleSoft (Nasdaq: PSFT  ) finally decided yesterday to glam itself up in the hope that suitor Oracle (Nasdaq: ORCL  ) might give it one more look.

Yeah, I know the board turned down Oracle's $24-per-share bid. But did you actually read the press release? In spurning the database king, PeopleSoft issued a statement that spends pages touting its accomplishments, as if to say, "We are indeed rejecting you... but are you sure you don't want some of this?"

Frankly, this shouldn't even be a story, except that PeopleSoft never issued such a lengthy rebuttal-cum-plea in response to Oracle's four prior tender offers. The closest thing was a February statement that denounced Oracle's $26 per share bid. Yet half that release discussed now-removed antitrust roadblocks.

It's actually pretty instructive to rewind to the beginning of the year, because, back then, PeopleSoft was rightfully riding high. The firm had come off a strong 2003 fourth quarter and confidently increased its full-year 2004 income expectations to $0.64 per share. License revenue expectations were upgraded to $700 million.

Now fast-forward to yesterday. In a conference call, executives said they expect $0.14 to $0.16 in fourth-quarter per-share earnings. Add that to its nine-month total of $0.16 per share, and you get no more than $0.32 per stub for the full year, or half what PeopleSoft expected in January. License revenue, too, is expected to be below earlier estimates by $100 million. No wonder Oracle lowered its bid.

But PeopleSoft promises things will be better in 2005. Executives predict $700 million in license revenue and a rise in overall income of at least 150% to between $0.82 and $0.87 per stub. The firm also thinks it can grow operating margins from 4% to more than 16%. Color me skeptical, but I'll believe it when I see it.

Of course, all this posturing may mean nothing. Oracle hasn't said it won't negotiate, but it has also promised to drop its bid unless 50% of stockholders tender their shares by midnight a week from tomorrow. It has also said $24 a share is its final offer.

For their part, PeopleSoft executives said they think shareholders will promise to sell their holdings to Oracle for any number of reasons, none of which have to do with an understanding of the fair value of the business, and that a proxy fight will ensue.

Indeed, that may very well be true. Or PeopleSoft may just be making one last attempt at getting a better deal. Either way, only one clear winner remains: Oracle and PeopleSoft rival and business software market leader SAP (NYSE: SAP  ) .

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Fool contributor Tim Beyers owns shares of Oracle. You can view his Fool profile and other stock holdings here.


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