Oracle's Hostile Takeover of PeopleSoft (A)

In June of 2003, PeopleSoft management announced a merger with J.D. Edwards. Within hours of the announcment, Oracle had launched an hostile takeover attempt of PeopleSoft. Oracle’s bid raised enormously difficult questions for the PeopleSoft board. Oracle’s bid raised questions about whether PeopleSoft products would continue to be supported and customers became reluctant to buy PeopleSoft software. Managers were therefore faced with a decision about how to respond to the bid and the uncertainty it created. To regain customer and analyst confidence, PeopleSoft’s board considered adopting a Customer Assurance Program in which customers would receive a cash payment in the event of a takeover. This promise of a cash payment would encourage customers to invest in PeopleSoft products, but also created a liability that might be large enough to derail Oracle’s takeover attempt altogether. The board therefore had to consider the implications of a Customer Assurance Program for the welfare of the firm, its customers and its duties to shareholders faced with a tender offer.