Antitrust laws are supposed to protect us little guys, right? Think again. Here’s the story of how PeopleSoft chief executive Craig Conway is using the antitrust laws to deprive his own shareholders of the opportunity to sell their shares at the best price.
I’m a PeopleSoft shareholder — and I’m mad as hell about it.
As you probably know, Oracle has been trying to buy PeopleSoft since last June. It has raised its tender price twice since then, most recently on Wednesday, offering $26 a share — a price PeopleSoft hasn’t seen since April 2002.
I’d love to sell my PeopleSoft shares to Oracle at $26 — or to anyone, for that matter. But PeopleSoft CEO Conway won’t let me. From the very beginning he has adamantly opposed the deal.
Sure, CEOs are supposed to act like they are opposed to deals like this. It’s a form of “playing hard to get” that gets the potential acquirer to bid more money for the company. But Conway is doing something else. When Oracle made its first bid last June, Conway said he “could imagine no price nor combination of price and other conditions to recommend accepting the offer.”
So let me get this straight. If Oracle were to bid a million dollars a share, Conway would still oppose the deal? Seems so. And that’s where the antitrust laws come in. Conway is using them to make sure that even if Oracle makes a killer bid, the antitrust authorities will kill the deal.
Under the Hart Scott Rodino Act, all corporate mergers must be preapproved by antitrust authorities. You’d think that Conway — working on behalf of his shareholders to get the best price for their shares — would be bending over backward to convince the Department of Justice that an Oracle acquisition of PeopleSoft presents no antitrust concerns. But it’s just the opposite.
Conway is trying to convince the DOJ that the “antitrust issues here are significant. In a number of important areas, including the supply of core human-resource management and financial-management software to large corporations and government agencies — PeopleSoft, SAP and Oracle do stand alone. By reducing the number of competitors from three to two…we believe the transaction would harm customers through higher prices and lower customer service, functionality and innovation.”
Even if that all were true, Conway shouldn’t say it. He’s a CEO, not an antitrust regulator. He has a duty to his shareholders to try to make this deal possible — not to get it killed.
And besides, it’s not true.
Conway is carefully defining a narrow market — human-resources and financial software for large corporations and government agencies — in order to be able to claim that PeopleSoft, SAP and Oracle are the only important players in that market. But even that specialized market is nowhere near that simple.
For one thing, there are other competitors such as Lawson, SSA Global/Baan and Sage. And a little company called Microsoft has announced it’s going to spend billions building what it takes to jump into the fray. And there are also a growing number of outsource providers like ADP and Fidelity who don’t just provide HR software, but take on the whole job of running a company’s HR function.
And just as important, let’s remember who the buyers are in this market: the largest corporations and government entities. These aren’t exactly a “victim class” — they’re hardly the little guys that the antitrust laws are supposed to protect. When these buyers go out to bid for HR and financial enterprise software, they set the terms — not the software companies.
It must be said that there’s more than a little irony in the way Conway is using the antitrust laws to thwart Oracle. Larry Ellison — Oracle’s CEO — was perhaps the single most strident advocate of antitrust enforcement against Microsoft, and is now hoist by his own petard. But delicious as that may be for those — like me — who have always thought the antitrust laws were ripe for just this kind of corporate abuse, the bottom line is that two wrongs don’t make a right. Whatever Ellison’s sins, Conway is still wrong to use the antitrust laws, or anything else, to keep his shareholders from getting the best deal.
And Conway hasn’t stopped there. Last year, PeopleSoft put in place an unusual program that guaranteed its customers refunds of from two to five times the dollar value of their PeopleSoft software license fees if the company were acquired. According to company filings, in the most recently reported quarter, the liability for this program was $807 million — that’s how much Oracle would have to pay to PeopleSoft’s customers, in addition to what it already paid to shareholders to acquire PeopleSoft in the first place. This has got to be a first — a “poison pill” that transfers shareholder wealth to the company’s customers.
As Jim Finn, Oracle’s vice president for world-wide corporate communications, told me, “I’ve actually been amazed at the lack of outrage.”
Why is Conway doing it? He’s a PeopleSoft shareholder himself, with stock valued at more than $115 million. And an Oracle takeover would make him wealthier still, thanks to a golden parachute of options and other benefits that would net him in excess of another $60 million if Oracle gives him the boot.
I don’t know the answer. Maybe Conway just doesn’t like Oracle — he used to be a senior executive there before joining PeopleSoft. Or maybe he likes the perks of being the boss. He wouldn’t be the first CEO who cared more about hanging on to the trappings of power than going from fabulously wealthy to ultrafabulously wealthy.
PeopleSoft’s spokesperson Steve Swasey wouldn’t say anything about it for the record except that “our board, consistent with its fiduciary duties, will consider the revised offer.”
How I came to be a PeopleSoft shareholder isn’t irrelevant to all of this. I’d been a shareholder of J.D. Edwards, a small enterprise software company, which was acquired last year by PeopleSoft. And the only reason I was a J.D. Edwards shareholder is that it acquired an even smaller software company, YouCentric Corp., a private company in which I held a venture stake. You see, the little fish is always eaten by the big fish. And then the big fish, in turn, is eaten by the even bigger fish. And shareholders make money with each gulp.
Now it’s time for the man we pay to run our company — yes, our company! — to do what we’re paying him to do. Let the antitrust officials interpret antitrust laws for themselves. All Craig Conway needs to do is make sure that PeopleSoft gets eaten at a nice high price. Bon apetit!
The above is an “Ahead of the Curve” column published February 6, 2004 on SmartMoney.com, where Luskin is a Contributing Editor.
