The Heat Is On Oracle

Antitrust concerns mount for Oracle as the developer pursues a takeover of PeopleSoft.

Oracle Corp. is facing new antitrust obstacles and a potentially bigger price tag in its bid to buy enterprise software maker PeopleSoft Inc.

A group of state attorneys general have formed a working group to look at the antitrust issues involved in the proposed transaction, and the U.S. Department of Justice has requested more information from Oracle on the proposed $6.3 billion purchase.

At the same time, PeopleSoft, of Pleasanton, Calif., announced preliminary second quarter earnings on Wednesday that underscored its stance that Oracles hostile takeover bid undervalues the company.

Oracles offer to buy PeopleSoft shares expires on Monday, July 7, at which point the Redwood Shores, Calif., company must publicly withdraw or extend the offer. While Oracle officials declined to comment on their plans, industry analysts suggest the only reason the company would consider withdrawing the tender offer is if it became clear that there would be an antitrust case against it, which would be a major impediment.

Fifteen states including Texas, California, Massachusetts, Delaware, Minnesota and Montana have formed of a working group on behalf of their attorneys general, according to sources familiar with the group. This signals that there is enough regulatory concerns on the states behalf to warrant the allocation of resource to look further into the deal, legal experts said.

"That doesnt mean it will result in a challenge [to Oracle] by the DOJ or that a federal court would agree and block the transaction," said Charles Biggio, a partner at Akin Gump Strauss Hauer & Feld in New York and former deputy attorney general in the antitrust division of the DOJ in the Clinton Administration. "But if you look at history where states are concerned, more often than not you see some action taken, either a restructuring or an effort to block the deal."

Oracle was quick to downplay the new working group.

"This is just part of the states normal review process for any merger in any industry. Its important not to confuse process with outcome," said Oracle spokeswoman Jennifer Glass, in Redwood Shores, Calif. "We have pledged our full cooperation."

In addition, the DOJs second request for information from Oracle signals significant antitrust violation concerns, according to Biggio. Mergers and acquisitions experts said that, considering the size and scope of the transaction, the DOJs request for information is normal.

Ken Marlin, managing partner of the high-tech investment bank Marlin & Associates LLC, in New York, said that other motivations for the DOJs move include the antitrust lawsuit filed by the State of Connecticut on June 18, as well as concerns raised by PeopleSoft customers.

"The Justice Department has a tendency to look at transactions if there have been issues raised by customers," Marlin said. "The entire essence of the antitrust laws is to protect the customers. And in this case you have PeopleSoft requesting that customers make their views known to the DOJ."