SAN FRANCISCO—At the ongoing antitrust trial here, Oracle Corp. CEO Larry Ellison testified on Wednesday that merger discussions Oracle and PeopleSoft Inc. conducted in mid-2002 failed mainly because PeopleSoft chief executive Craig Conway insisted he would remain the sole head of the merged business applications group.
Conway called Ellison in June 2002 to discuss a possible merger more than a year before Oracle made its buyout bid for PeopleSoft.
Before a packed courtroom here in the U.S. 9th District Court, Ellison said Conway proposed the merger discussions as the best way for PeopleSoft and Oracle to fend off competitive pressures from SAP AG as the dominant player in the business applications market.
“We thought we would be better able to compete if we joined forces,” he said, adding that that at the time Ellison thought it was an “interesting idea.”
Ellison said he told Conway that he needed more time to think about the deal. He then initiated discussions, which included Oracle President Safra Catz. The two companies subsequently held high-level talks on how to carry out a merger.
Following these meetings, Ellison was convinced even more that this would be the “smart thing we could do to improve our business position,” he said.
However, he could not accept Conways demand that the PeopleSoft executive run the applications group because Oracle would be the majority owner of the merged companies. Once these talks failed, it wasnt until the day that PeopleSoft announced its planned merger with J.D. Edwards that Oracle decided the time was right to make its tender offer.
Oracles legal team announced on Monday that it would not call Conway, who had been subpoenaed to appear on Tuesday. Before the trial started, Oracle attorneys predicted they would grill Conway for six hours, press reports said.
Ellisons testimony discredits PeopleSofts carefully cultivated public image that it was righteously struggling to preserve its independence against the aggressive buyout demands of a larger, richer and more powerful Oracle. The testimony showed that PeopleSoft was just as worried about remaining competitive in the ERP (enterprise resource planning) market as Oracle and was prepared to consider a merger with its archrival in the U.S. market.
However, Department of Justice attorneys denied Wednesday that Ellisons testimony seriously damaged its antitrust case against the Oracle buyout.
The DOJ “would have still analyzed the transaction in the same way” no matter who proposed the merger, whether it was PeopleSoft or Oracle, said Thomas Barnett, deputy assistant attorney general in the DOJ antitrust division. “Our investigation would have still led to the same place,” that the transaction would be anti-competitive in the market for enterprise business application software, Barnett said.
The testimony showed that the Oracle bid for PeopleSoft wasnt about acquiring technology; it “was about buying customers rather than competing for them in the old-fashioned way,” added Renata Hesse, a DOJ trial attorney.
Ellison, as always dapper in a tailored suit and tie, was on the stand more than for more than two hours Wednesday—under direct examination for just under 30 minutes by Oracle lead attorney Daniel Wall and under cross-examination for more than 90 minutes by DOJ lead attorney Claude Scott.
Scott presented documents to support the governments contention that Oracle initiated the buyout to disrupt PeopleSofts business plans and complicate its buyout of ERP software vendor J.D. Edwards. This included a June 9, 2003, e-mail from Joe Reese, an investment banker who was advising Oracle on the PeopleSoft bid, who described the initial bid as a “twist in the wind strategy.” Reese advised that Oracle stand firm with its initial bid of $16 per share for PeopleSoft “to create doubts in the minds of the market.” Over time “we should see a decline in the price” of PeopleSoft.
Ellison noted, however, that PeopleSofts price actually increased as the summer wore on and that Oracle had to sweeten its bid to retain the interest of PeopleSoft shareholders.
Ellison also denied that Oracles buyout bid was an effort to snap up both J.D. Edwards and PeopleSoft at the same time. Ellison said Oracle was hoping to convince the PeopleSoft board of directors to accept its bid as a more sensible business alternative to the J.D Edwards merger. However, the Oracle bid failed to derail PeopleSofts acquisition of J.D. Edwards.
Scott also presented a transcript of Oracles June 6, 2003, conference call with stock market analysts to support its contention that Oracle was going to force a rapid migration to Oracle business applications rather than provide long-term support for PeopleSoft applications.
In announcing the bid, Jeff Henley, Oracle chief financial officer, said at the time there would be “minimal business integration risks since we will not be integrating the product lines.”
Ellison denied that meant that Oracle would not provide continuing support for PeopleSoft applications. After spending billions of dollars to “acquire the customers, the last thing we are going to do is annoy customers” by forcing an early migration to Oracle applications, Ellison said.
Rather, it was a PeopleSoft public relations campaign that convinced the media that Oracle would not provide long-term support for PeopleSoft applications, Ellison said.
If Oracle is allowed to acquire PeopleSoft, the goal would be to release new business applications that merge the best technology in the Oracle and PeopleSoft applications, Ellison said. Oracles objective would be to “make it as easy for people to migrate from PeopleSoft 8” to the merged PeopleSoft/Oracle products “as it was to migrate from PeopleSoft 7 to PeopleSoft 8, Ellison said.
The Department of Justice has argued that Oracles attempted $7.7 billion takeover of PeopleSoft is inherently anti-competitive because it would eliminate one of only three top players in the market for so-called “high function” software: Oracle, PeopleSoft and SAP. The DOJ is seeking a permanent injunction to block Oracles bid for PeopleSoft.
Ellison said that when the initial merger talks broke off, Oracle also talked to J.D. Edwards about a possible merger. He said the smaller company was determined to be a less desirable merger target, so Oracle didnt actively pursue that avenue.
Editors Note: This story was updated to include information and comments from the cross examination.