DOJ Suit Drives Stake Through Heart of PeopleSoft Buyout

The Department of Justices decision to file suit to block Oracles hostile bid to buy out PeopleSoft has driven a wooden stake through the heart of this misbegotten deal.

But there likely will be plenty of frantic thrashing about until the buyout offer is finally laid to rest for good. Rather than simply throw up its hands and walk away, Oracle will no doubt head to court in hopes of persuading a judge to deny the governments request for an injunction.

But once the Justice Department finds that a corporate buyout violates antitrust law because it reduces market competition, its rare for the federal courts to overturn that decision. Oracle will simply be buying time for its final roll of the dice—the PeopleSoft proxy vote on March 25 that will decide whether shareholders will vote in a slate of Oracle-nominated directors committed to the buyout.

A shareholder vote in favor of Oracles slate of nominees would certainly add urgency to a Quixotic legal battle to thwart a DOJ injunction. But if the challenge slate is voted down, the deal will be well and truly dead. Such a vote should be enough to persuade even a company as tenacious as Oracle to turn away to other more profitable business.

Its certainly ironic that PeopleSoft was able to merge with J.D. Edwards without causing the DOJ to raise any red flags about an illegal suppression of market competitiveness. But the combination of those two companies cant compare with the market power Oracle and PeopleSoft.

Oracle has long been a dominant player in the database market and has its own extensive suite of enterprise applications. It has about 11,000 customers for its financial applications and about 3,500 customers for its human resources applications, most of which are Fortune 500 companies, notes Paul Hamerman, vice president and enterprise applications specialist with Forrester Research in Cambridge, Mass.

The merger would have given Oracle a huge footprint in a limited market, leaving firms like SAP AG, SAS Institute and Siebel Systems to scramble for the rest of the market. "Put together PeopleSoft and Oracle, and that doesnt leave much choice for the companies that buy these enterprise applications," Hamerman said.

Hamerman contends that Oracle doesnt need to carry out this merger to climb back into second place in the software industry. "Their applications business is not in bad shape at all. Their applications sales have shown some improvement in the latest quarters," he said.

Next page: Time for Oracle to move on.