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PeopleSoft profit seen possibly dropping in '04


WILMINGTON, Del. - Peo- pleSoft Inc.'s profit this year might be "significantly" lower than earlier analysts' estimates, and the company might have trouble surviving on its own, Oracle Corp. Co-President Safra Catz testified yesterday at a trial aimed at eliminating Peo- pleSoft's takeover defenses.

Catz said Oracle's estimate for PeopleSoft's 2004 profits of about "60, 59, 61" cents a share is "down significantly" from analysts' forecasts in the first quarter, which were about 90 cents a share in April, according to Thomson Financial. "What I see is by a magnitude of one-third to one-quarter."

She didn't comment on how lower earnings might affect Oracle's bid for PeopleSoft, but other Oracle executives said last week that the recent drop in the target company's stock may cause Oracle to reduce its bid.

PeopleSoft's 2004 profit, which would be about 6 percent below last year's earnings, might make it difficult for the company to continue to operate independently, Catz said.

Oracle, the third-biggest maker of business software, announced a hostile bid for Peo- pleSoft in June last year and has made four offers for the company, the most recent valued at $7.7 billion.

'Not viable longer term'

"PeopleSoft as a stand-alone entity is really not viable longer term," Catz told Judge Leo Strine Jr. "PeopleSoft knows, longer term, there's a problem."

PeopleSoft spokesman Steve Swasey, speaking outside the courtroom, declined to comment on the company's profit.

Catz, who is responsible for Oracle's acquisition strategy, said the company hasn't decided whether to change its bid.

"We're taking into account additional liabilities that People- Soft was putting onto their company, specifically talking about severance agreements," Catz said. "No decision has been made. It's currently at the management level."

Catz, 42, who made infrequent public appearances before the bid, has emerged in recent months as a visible advocate of the transaction. She testified at the U.S. government's antitrust trial in June and defended the bid to analysts in July.

Catz proposed buying PeopleSoft last year after she heard about the company's agreement to buy J.D. Edwards & Co. for $1.7 billion. She sent e-mail to Oracle founder Larry Ellison, saying it would be a good time to consider buying PeopleSoft. Ellison replied, "Just what I was thinking," Catz said.

Oracle sued PeopleSoft last year, asking Strine to invalidate poison pill and customer-rebate programs to clear the way for a takeover. Ellison testified last week that Oracle has considered lowering its latest $21-per- share offer as the business-software market contracts.

Report last week

Last week, PeopleSoft said it had a third-quarter profit and said sales beat analysts' estimates. In the previous four quarters, profit dropped and PeopleSoft lost customers as it fought Oracle's bid.

The announcement, which followed the firing of chief executive Craig Conway, raised the prospect that Oracle may increase its offer for the company.

Catz also denied that Oracle was attempting to portray PeopleSoft as a distressed company to acquire it on the cheap.

"I'm not trying very hard to convince anyone," she said. "I think they're doing a good job on their own."

PeopleSoft's poison pill would flood the market with low-cost stock, and its "customer assurance program" would provide rebates to software licensees if Oracle takes over, making the buyout prohibitively expensive.

Ellison is pursuing PeopleSoft to boost his company's share of the business-software market and cut its reliance on databases. He wants PeopleSoft's 12,400 customers and $1 billion in license and maintenance revenue.

Shares of PeopleSoft, the No. 2 maker of business software behind Germany's SAP AG, fell 12 cents to close at $21.83 yesterday on the Nasdaq stock market. Oracle shares rose 3 cents to $12.20.

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