NEW YORK (CNN/Money) -
Oracle, like a zombie in a bad horror movie, just won't go away.
The database software company said Wednesday it raised its all-cash offer for rival software provider PeopleSoft Inc. by 33 percent to $26 a share, or about $9.4 billion.
The bid was about 19 percent higher than PeopleSoft's closing price of $21.89 Tuesday. Oracle's previous offer was $19.50 a share. This is the second time Oracle has raised the per share price it was willing to pay for PeopleSoft. Its initial $5.1 billion bid last June was worth $16 a share, and it raised the offer later that month to $6.3 billion.
Since PeopleSoft completed its takeover of another software company, J.D. Edwards, last July, the size of Oracle's bid increased to more than $7.3 billion even though Oracle did not raise the per share price.
A spokesman for PeopleSoft said its board will meet to review and discuss the new bid and will make a recommendation in due course. The company has repeatedly rejected all of Oracle's offers for the company since its first bid was announced.
Shares of PeopleSoft (PSFT: Research, Estimates) were up nearly 4 percent in late-afternoon trading Wednesday, to $23.07, while Oracle (ORCL: Research, Estimates) dipped about 5 percent.
Latest plot twist in a software soap opera
It's a stunning turn of events in this nearly eight-month long saga. At first, it was believed that it was imperative for Oracle to succeed in taking over PeopleSoft, which sells so-called application software, products that help big business manage tasks such as customer relations, human resources and supply chains.
Applications are a more lucrative area of the software market than Oracle's flagship database business, which is facing more intense competition from the likes of IBM and Microsoft.
But recently, several analysts had started to think that Oracle could walk away from the PeopleSoft offer since Oracle's own application software business was finally starting to show signs of picking up.
Oracle had not given any indication before Wednesday that it was planning on raising its bid. But with PeopleSoft's annual shareholder's meeting set for March 25, it must have become increasingly clear that Oracle could not have convinced shareholders to approve to what amounted to a takeunder.
Oracle intends to nominate a slate of candidates for PeopleSoft's board at the meeting. Clearly, a higher-than-market-price bid will have shareholders re-evaluating whether or not to vote for Oracle's nominees. "This increase in the bid is just to stay in contention," said Cheng Lim, an analyst with Fulcrum Global Partners.
But even if PeopleSoft investors approve a takeover, the company still faces other hurdles. The Department of Justice and European Union are reviewing the proposed merger for possible antitrust implications. Oracle said in a release Wednesday that it expects to hear back from the DOJ before March 12, which is also when the new bid for PeopleSoft is set to expire.
"This is the closest to a real offer that we've had but it's still not in the bag. The regulatory issues just don't go away because you up the price," said Kimberly Caughey, an analyst with Parker/Hunter.
In addition, when Oracle first announced its intention to acquire PeopleSoft, CEO Larry Ellison said Oracle was planning on discontinuing PeopleSoft's products and would switch customers to its suite of application software.
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To combat this, PeopleSoft instituted a unique customer rebate program that could make it prohibitively expensive for Oracle to acquire PeopleSoft. Basically, Oracle is trying to overturn this in court.
But Richard Williams, an analyst with Summit Analytic Partners, said that PeopleSoft customers will likely rally behind it and purchase more software in an attempt to thwart Oracle. That's because changing software systems would be an expensive proposition.
"The reality is that an Oracle deal would cost PeopleSoft customers. They have a vested interest in keeping PeopleSoft independent," Williams said.
And Lim thinks that there is little chance that the DOJ will approve the deal since there have been numerous delays in the review already. "To me, a merger is clearly anti-competitive. I'm hearing that Oracle has more pricing power with customers and it will continue to increase pricing power if it takes over PeopleSoft," Lim said.
Still, Oracle CFO and chairman Jeff Henley said in a statement that this was Oracle's "final price" and urged PeopleSoft shareholders to tender their shares and vote for Oracle's board nominees. He pointed to PeopleSoft's lower than expected guidance for its first quarter as evidence that PeopleSoft would be better off as a part of Oracle.
Trip Chowdhry, an analyst with FTN Midwest Research, agreed that PeopleSoft shareholders should agree to the sweetened deal. He said that the stock has done well over the past few months because of Oracle's offer and that without the possibility of a takeover, it will be hard to justify shares trading at current levels.
"$26 a share is a fair value for PeopleSoft. If this deal doesn't go through, PeopleSoft's stock will start going back towards the levels before the original merger was announced," Chowdhry said. PeopleSoft was trading at about $15 before Oracle launched its hostile takeover in June.
-- Analysts quoted in this piece do not own shares of Oracle or PeopleSoft and their firms have no investment banking relationships with the companies.