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.
“Its time for Oracle to move on,” Hamerman contends. “They should focus on their own business and work on catching up. They are not that far behind PeopleSoft.” PeopleSoft still faces the challenge of fully integrating J.D. Edwards into its organization and this gives Oracle a competitive opportunity, he added.
Instead Oracle will march into court to argue that enough enterprise application software producers survive to support a competitive environment. The company might certainly argue that blocking this merger is only postponing the inevitable. The industry is sure to contract some more in the coming years, so why shouldnt Oracle share in the spoils?
The answer is that a company that is dominant in one market segment shouldnt be allowed to gut the competition from another market with a mega-merger. The goals of this merger were essentially anticompetitive ones. Oracles existing applications business is doing well, has shown healthy growth with the economic recovery, and promises to generate healthy profits in the future. These applications provide a sound foundation to build its market share over the long term.
But with the PeopleSoft buyout Oracle is prepared to spend $9.4 billion in an attempt to regain its position overnight as the second largest software company in the country.
The history of American capitalism is replete with examples of mergers aimed at winning market dominance and monopoly. While this merger wouldnt give Oracle anything resembling a monopoly, it would go a long way toward sucking the vitality and diversity out of the market.
In the final analysis, this merger isnt really necessary for Oracle to achieve the same goal over the long term. Oracle was founded 27 years ago and spent more than half of that time becoming the dominant relational database vendor. There is nothing preventing Oracle from building up its application business in the same way.
However, after the shareholders and the courts finally lay this deal to rest, Oracle will still have billions of dollars burning a hole through its vaults. It wont be content to sit quietly at its Redwood City, Calif., headquarters patiently building up its existing product line.
Look for Oracle to snap up smaller point players in specific enterprise fields, such customers relationship management, product lifecycle management, supply chain management and products that service industry verticals.
Such deals are far more likely to help Oracle strengthen its product line without provoking DOJ opposition or suppressing market competition.
eWEEK.com Enterprise Applications Center Editor John Pallatto is a veteran journalist in the field of enterprise software and Internet technology.