PeopleSoft to offer refunds if Oracle takes over

PeopleSoft has begun promising to pay refunds to some new or upgrading customers if it’s acquired and the products they purchased are discontinued, sources said this week.

And on June 9, the same day that Oracle launched a hostile bid to buy it, PeopleSoft sent a letter to a potential customer that includes a contractual offer to pay the user twice the cost of its software licenses. According to the letter, which was obtained by Computerworld, the payment would be triggered should PeopleSoft be bought within a year and if within two years the new owner discontinues the purchased applications or sets plans to stop supporting them.

The refund strategy is seen as an attempt by Pleasanton, Calif.-based 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 this week, as Oracle upped its offer to $6.3 billion and PeopleSoft and J.D. Edwards amended their merger agreement in an effort to speed up that deal.

The identity of the user that received the June 9 letter was shielded from Computerworld. PeopleSoft declined to comment about the letter and said it doesn’t publicly discuss customer contracts. But a spokesman confirmed that PeopleSoft has initiated “a prudent response to Oracle’s attempt to disrupt our business.” He added that PeopleSoft is taking steps “to protect our customers’ investments and our market position.”

Jim Prevo, CIO at PeopleSoft user Green Mountain Coffee Roaster in Waterbury, Vt., said he has heard about such letters but hasn’t seen one. Prevo described the refund provisions spelled out in the letter as “a good offer” for users.

“If I had any pending purchases with PeopleSoft, I’d move forward as a vote of confidence in the management team,” Prevo said, noting that the promise of refunds would let users do so “without extraordinary financial risk.”

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

For example, Bruce Leidal, director of technology at Hayes Lemmerz International in Northville, Mich., this week said the uncertainties raised by Oracle’s offer may affect a plan to consolidate the automotive parts maker’s ERP systems.

Leidal said he sees potential benefits in PeopleSoft’s plan to acquire J.D. Edwards because it would combine J.D. Edwards’ manufacturing applications and PeopleSoft’s human resources software. But now, he said, “maybe we ought to stand away from a selection with Oracle, PeopleSoft or J.D. Edwards.” Hayes Lemmerz officials planned to meet with ERP market leader SAP this week, Leidal added.

Joshua Greenbaum, an analyst at Enterprise Applications Consulting in Daly City, Calif., said he’s not convinced that the refund deals will persuade users to go ahead with purchases. He said license fees typically amount to only 10 percent to 15 percent of the total cost of ownership for business applications. “Everything [PeopleSoft CEO Craig Conway] does at this point can be measured by multiple yardsticks,” said Greenbaum. The refund offer is at least in part meant to “thwart Oracle’s efforts,” he said, but its real purpose is to close deals, because PeopleSoft is desperate to make its numbers.

Oracle declined to comment about the refund offers. But the company made clear that it plans to push ahead with the takeover bid, increasing its original $5.1 billion offer and filing a lawsuit against PeopleSoft, its board and J.D. Edwards. Oracle’s suit is one of a flurry of legal actions involving the three vendors and a PeopleSoft user.

The initial purchase price that Oracle announced June 6 was widely viewed as a lowball bid. The new offer makes the proposed buyout “a viable deal,” said Barton Goldenberg, a CRM software analyst at Bethesda, Md.-based consulting firm Information Systems Marketing. However, he predicted that PeopleSoft stockholders will still reject it.