Oracle Sought Buyout Advice from Former CA Chief Kumar

By John Pallatto  |  Posted 2004-07-01

Oracle Sought Buyout Advice from Former CA Chief Kumar

SAN FRANCISCO—Oracle Corp. Co-President Charles Phillips met over lunch with Sanjay Kumar, former chairman of Computer Associates International Inc., to get his advice on how to win U.S. Department of Justice clearance for its $7.7 billion buyout bid for PeopleSoft Inc.

On June 27, 2003, Phillips sent an e-mail message to Oracle CEO Larry Ellison, Chief Financial Officer Jeff Henley and Oracle President Safra Catz, saying that Kumar advised him that it was possible to get negative DOJ staff decisions overturned. "But you need lawyers who are absolutely plugged in" at the DOJs staff and management levels, wrote Phillips.

Phillips e-mail memo was presented as evidence Wednesday in U.S. District Court here in the governments lawsuit seeking a permanent injunction to block Oracles acquisition of PeopleSoft.

The memo noted that CA managed to convince DOJ management to overturn negative staff recommendations on two separate CA acquisitions.

Philips described Kumar "as the master of software deals" who worked on "every important" acquisition that CA carried out in the 1990s. However, Kumar has since fallen from grace in the wake of a Securities and Exchange Commission investigation of CA accounting practices.

He first resigned as chairman and later departed from the company after employees were fired and others were indicted on accounting fraud charges claiming that CA was chronically booking software sales revenue before it was actually realized to improve its quarterly financial reports.

The DOJ Antitrust Division reviews all merger and acquisition bids to ensure that they dont violate antitrust law by being anti-competitive. The DOJ staff recommended that the department deny Oracles buyout of PeopleSoft on the grounds that it would create an anti-competitive market for enterprise application software.

The DOJ presented the document to support its contention that Oracle wont continue to upgrade and support the current PeopleSoft product line. Instead, it will subject customers to a rapid and costly migration to Oracle applications.

Oracle CEO Larry Ellison Wednesday, testifying here Wednesday, denied that Oracle would alienate PeopleSoft customers after paying billions of dollars to acquire the company. He said Oracle would continue to support the product and allow customers to upgrade to a merged Oracle/PeopleSoft product line at a time of their own choosing.

Click here to read about Oracle CEO Larry Ellisons testimony on his early talks with PeopleSoft chief executive Craig Conway about a friendly merger.

The memo recommended several steps to correct customer impressions that Oracle will not continue to support PeopleSoft applications if its buyout bid is successful.

"Well have to admit that things got off on a bad foot and we didnt express our true intentions very well," Phillips wrote. "Thats the only way to explain the reversal in our position with respect to customers."

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The memo also recommended that Phillips, Catz or Ellison meet with the Connecticut Attorney General Richard Blumenthal to "promise him support for his product, which is the same thing weve already promised everybody else."

To read about other merger targets Oracle considered before making its hostile bid for PeopleSoft, click here.

Blumenthal has been an activist in bringing antitrust complaints against information technology companies on behalf of Connecticut consumers. At Blumenthals behest, Connecticut joined other states in supporting the DOJs antitrust litigation against Microsoft Corp.

To resolve his opposition to the PeopleSoft buyout, Phillips suggested Oracle "give him a victory so he can back off and say he got a concession."

The memo noted that Kumar is acquainted with several members of the PeopleSoft board of directors. Kumar recommended that Oracle offer concessions that would win the support of top PeopleSoft executives and board members, particularly PeopleSoft founder Dave Duffield.

Duffield, Kumar said, was concerned about the potential for mass firings once a buyout was completed. He suggested that Oracle announce a hiring freeze in advance of closing the buyout along witih a statement that Oracle "will try to keep as many PeopleSoft employees as possible."

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