Cumulative Abnormal Returns

(CARs)

Oğuzhan Karakaş

MFin Economic Foundations of Finance

Cambridge Judge Business School

 Oracle – PeopleSoft Takeover

VOL PSFT Index

180 400

160 350

140
300
120
250
100
200
80
150
60
B
100
40 I
A C H J K 50
20
D E G
F
0 0
01/2003

02/2003

03/2003

04/2003

05/2003

06/2003

07/2003

09/2003

10/2003

11/2003

12/2003

01/2004

02/2004

03/2004

05/2004

06/2004

07/2004

08/2004

09/2004

10/2004

11/2004

01/2005
A: 02/06/03 – PeopleSoft (PSFT) bids for J.D. Edwards & Co. (JDEC).
B: 06/06/03 – Oracle (ORCL) bids for PeopleSoft with $5.1 billion all-cash tender offer ($16 over previous day’s close $15.11).
C: 18/06/03 – Oracle boosts PeopleSoft bid to $19.50 a share.
D: 04/02/04 – Oracle sweetens bid for PeopleSoft by 33 per cent to $26 a share.
E: 11/02/04 – Department of Justice (DoJ) staff recommends against Oracle's proposed acquisition of PeopleSoft.
F: 26/02/04 – DoJ blocks Oracle's bid for PeopleSoft.
G: 14/05/04 – Oracle cuts takeover bid for PeopleSoft to $21.
H: 09/09/04 – Federal judge clears Oracle bid for PeopleSoft.
I: 01/10/04 – PeopleSoft ousts CEO amid battle with Oracle.
J: 01/11/04 –Oracle sweetens PeopleSoft offer to $24.
K: 01/11/04 –Oracle buys PeopleSoft for $26.5.
Data. WRDS and Factiva.
Oracle – PeopleSoft Takeover

• “It is like having a wedding and (Oracle CEO) Larry (Ellison)

showing up with a shotgun trying to get someone to marry
him.”
Craig Conway, CEO of PeopleSoft, 6 June 2003 (Factiva).

• “If Craig and Bear were standing next to each other and I
had one bullet, trust me, it wouldn’t be for the dog.”
Larry Ellison, CEO of Oracle, 14 July 2003 (NY Times).

• Conway responded by appearing on stage a few days later

with his dog (Abbey) – both of them wearing bullet-proof
vests.
Five reasons Oracle/PeopleSoft was more fun than Microhoo, News.com, 25 April 2008.
Oracle – PeopleSoft Takeover

• Impact on Arbitrageurs

• With the J.D. Edwards, bid arbitrageurs go long Edwards

and short PeopleSoft.

• PeopleSoft being a target forces arbitrageurs to unwind

their positions and the resulting “short squeeze”
contributes to the rise in PeopleSoft shares which traded up
to $18.90 ($2.90 above Oracle’s offering price of $16).
Oracle – PeopleSoft Takeover
Cumulative Abnormal Returns (CARs) for PeopleSoft
Benchmark: CRSP Value-Weighted Index,
Estimation period: (-315,-63), Date 0: June 6, 2003

Basic Event Study – Daily Basic with Fama-French – Daily

MAR MM TSM

(-30,-2) -9.09% -15.85% -13.91%

(-1,0) 17.10% 16.88% 13.65%
(0,0) 18.27% 18.49% 18.01%
(0,+30) 16.17% 15.77% 13.51%
(0,+126) 28.19% 17.41% 34.32%
(0,+252) 7.85% -10.90% 19.97%
(0,+378) 30.46% 4.12% 59.24%

MM: Market Model

MAR: Market Adjusted Returns
TSM: Time-Series Model
Calculations are done using Eventus.