In his 39 years as a corporate lawyer, Andrew Bogen had seen his share of headstrong CEOs. So he wasn’t especially surprised by the excitable man glaring at him across the room. Craig Conway, the president and chief executive officer of PeopleSoft, Inc., had good reason to be agitated. His company had just been targeted in a June 2003 hostile bid by software giant Oracle Corporation.
To Conway, Oracle’s bid had started an all-out war requiring the fiercest tactics. During an emergency meeting, Bogen, a partner at Gibson, Dunn & Crutcher, kept reminding Conway and the rest of PeopleSoft’s board that there was this thing called Delaware law that required PeopleSoft to act carefully and deliberately and keep shareholder interests in mind.
Conway would have none of it. “I haven’t heard a single creative thing,” he snapped.
Bogen, a man with the lean, weathered look of a Clint Eastwood and a no-nonsense bluntness to match, wasn’t about to be cowed by anyone, including a 50-year-old CEO. As usual, he didn’t bother to sugarcoat his words. “I’ve been accused of a lot of things in my career,” he answered. “But a lack of creativity isn’t one of them.”
The battle had just begun-and we’re not just talking about the fight between Oracle and PeopleSoft. At crucial moments during the 18-month contest, PeopleSoft and its lawyers fought among themselves about as much as they jousted with Oracle. Lawyers and management clashed, and one by one they were shown the door; the lawyers fell first, and top executives followed. Classic ploys failed. PeopleSoft waived its lawyer-client privilege to make a point with a key Delaware judge and then sat back while a new counsel blunted its effect. It campaigned aggressively for the U.S. Department of Justice to intervene in the takeover, but then watched in horror as they drew one of the toughest judges in the West to preside over an antitrust suit. By the time it ended, the PeopleSoft battle had become the longest in U.S. history and the latest example of the tensions and wrenching choices faced by targets of mergers. Up against Oracle and its shrewd advisers from Davis Polk & Wardwell, even a united PeopleSoft team would have had trouble. But unity proved not to be an option.
Andy Bogen was already sweating when he heard about Oracle’s bid. Early on the morning of June 6, 2003, he returned home from his daily jog through the streets of Santa Monica to find the light on his answering machine blinking. As he listened to the messages from his Gibson, Dunn partners, the 63-year-old lawyer learned about Oracle’s unsolicited $5 billion tender offer. Its target, PeopleSoft, was a 15-year-old company based outside San Francisco in Pleasanton, California. It made the type of expensive “enterprise application software” that businesses use to manage tasks like payroll and accounts receivable. In effect, PeopleSoft, Oracle, and their principal competitor, SAP AG, had brought human resources into the high-tech age.
Oracle offered $16 a share, a scant 89 cents above the stock’s closing price the day before.
Bogen soon learned that not only were barbarians at the gate, but PeopleSoft had already stabbed itself in the foot. Caught off guard on a business trip to the Netherlands, CEO Conway had issued an incendiary press release without consulting with any legal advisers. “This is atrociously bad behavior from a company with a history of atrociously bad behavior,” he stated. He later added that he “could imagine no price…to recommend accepting the offer.” For good measure, he likened Oracle’s chief executive officer, Lawrence Ellison, to Genghis Khan.
This, unfortunately, is the last thing a CEO should say when faced with a hostile bid-that is, if he wants to comply with the law of Delaware (where PeopleSoft was incorporated). To show that a company is concerned with the interests of shareholders, its leaders should initially state that the board will consider the bid and announce its position later. In Delaware, inciting a grudge match between CEOs is not, generally speaking, recommended.
Two days later, Bogen bluntly told the CEO that his intemperate statements had caused a problem. They were speaking for the first time during a PeopleSoft board meeting at Gibson, Dunn’s Palo Alto office. Conway, still in Europe, was connected by speakerphone. Bogen had not worked for PeopleSoft before, although Gibson, Dunn was its regular corporate counsel. The board would have to go to extraordinary lengths to show that it was looking at this deal carefully, Bogen warned. It must proceed slowly, and deliberately, and be very cautious about any public pronouncements.
Conway passionately argued that he had to do whatever he could to save PeopleSoft. Ellison doesn’t play by the book, he insisted. So neither could PeopleSoft.
Bogen, however, had helped write that book. In 1985 Bogen successfully led the defense team in arguably the most famous takeover case in the annals of Delaware law: Unocal Corporation’s resistance to raider T. Boone Pickens. The Delaware Supreme Court upheld the company’s novel defensive maneuvers, and laid out the standards that 20 years later still define the boundaries for a hostile bid defense. If the target can show that it reasonably perceives the bid to threaten its operations, the board can take defensive actions. But courts won’t allow conduct that goes beyond what’s considered reasonably proportionate to the threat, especially anything that suggests that management is principally concerned with “entrenching” itself.