The U.S. Department of Justices staff is expected to recommend against Oracle Corp.s $9.4 billion hostile bid for PeopleSoft Inc., according to sources close to the deal.
After gathering the appropriate documentation and commentary from customers and competitors, the DoJs staff typically prepares their recommendations at the chief level, or front office. The staff is expected to present their recommendation to top officials this week, according to a report by CBS Marketwatch.
Once the staff makes its case, Assistant Attorney General Hewitt Pate, the highest ranking official at the DoJ, will have about a month to make the final determination to either impede Oracles pursuit of PeopleSoft through a federal injunction, or let the deal proceed on its own.
“This is a controversial transaction. The reaction of customers has been in many respects negative, and the states are in many cases opposed,” said Charles Biggio, a former DoJ attorney and current partner with Aiken & Gump, in New York. “The better bet is staff is opposed to the deal. Thats the word on the street.”
The staffs recommendation is not going to be news to the so-called front office. However Pate reserves the right to look at the case on the merits presented by the staff, as well as on the merits of the case presented by the parties involved.
Weighing the Competition
Oracle, which lobbed its initial tender offer at PeopleSoft last June, has argued that the deal would not be anti-competitive to the software industry because there are many smaller e-business software providers that would step up and fill the gap.
PeopleSoft, on the other hand, has argued that there are three competitors in the top tier of e-business software providers: SAP AG, Oracle and itself.
Microsoft, too, has been fingered as a competitor—most notably by Oracle. While the software giant now provides ERP (enterprise resource planning) software for the small and mid-sized business sector, it is largely anticipated that it will enter the larger enterprise sector in the future.
In determining the nature of Oracles hostile bid, Pate will weigh the staffs recommendations, customer and competitor input and both parties arguments.
“It is common for the assistant attorney general to follow the recommendations of the staff, but [that recommendation] could be overturned,” said Biggio. “Pate will make up his own mind.”
Once the staff recommendation is made, there will be a dialogue at the highest levels of the DoJ to determine the merits of the case. At that point, Pate will either decide to bring a lawsuit or allow the deal to go through.
Looking at the Scenarios
There are a number of different scenarios that could occur once a DoJ decision is made: There will either be a lawsuit filed by the DoJ in federal court—or not; if the DoJ does file suit to stop the proposed transaction, Oracle could decide to abandon the deal to avoid a lengthy and costly court battle, or it may decide to fight.
Should the matter go to court at the federal level and the DoJ wins, the deal is off. On the other hand, should the DoJ lose, the deal is on again and both Oracle, of Redwood Shores, Ca., and PeopleSoft, of Pleasanton, Ca, are free to pursue their individual legal battles to influence the takeover deal.
There is also the possibility of a settlement should the DoJ decide to take the matter to court—though this scenario is unlikely given the difficulty in identifying and spinning off overlapping products that would be satisfactory to all parties.
“Even if [Oracle] said, lets spin off a couple of applications, these are to some extent integrated products,” said Biggio. “Youre not going to preserve competition if you take PeopleSoft and cut it in half.”
The DoJs final decision on the deal is now expected between the first and second weeks of March, according to sources close to the deal.
Oracle spokeswoman Deborah Lilienthal confirmed the timing.
“We expect a decision on or before March 12,” said Lilienthal.
A spokesman from the DoJ declined to comment on the timing of the decision, or on the staffs recommendation, but said the investigation is ongoing.