Pity poor Judge Vaughn Walker. He sat through four weeks of often tedious testimony as Oracle and the Department of Justice sliced and diced the enterprise applications software market for his consumption.
Its now up to him to decide whether Oracle Corp.s $7.7 billion hostile takeover bid for PeopleSoft Inc. should be permanently banned because it violates antitrust law.
He will have to wade through thousands of pages of testimony transcripts, depositions and expert witness reports to reach a decision. Its hard to fathom how the legal mind can sift through such a huge volume of information to reach a just decision that is supported by the law and the facts.
The futures of thousands of employees and customers of both companies hang in the balance. His decision could make countless millions of dollars in PeopleSoft application installations obsolescent at a stroke.
After the government and Oracle finished their closing arguments this week, it was impossible to tell whether one side or the other had the upper hand.
The decision likely will hinge on whether Walker accepts the governments vision that the enterprise application software market is dominated at the high end by only Oracle, PeopleSoft and SAP AG. Then, he has to consider whether customers would likely have to deal with reduced competition that would lead to curtailed market choices and higher prices.
Walker was perplexed by the governments definition of “high function” enterprise software, which he described as “unwieldy and awkward” because it includes 18 elements describing features, function and complexity.
He also questioned the governments decision to limit the relevant software market to the United States rather than include the global market. The software products include essentially the same features and functions no matter where they are sold around the world, he noted.
Next Page: Building the governments case.
Governments Case
But the government has argued that Oracle and PeopleSoft are stronger in the U.S. market than SAP because U.S. enterprises prefer to buy software from domestic vendors. Thus, U.S. customers would face a greater impact if PeopleSoft disappears in a merger with Oracle.
Walker seemed impressed by testimony from multiple PeopleSoft customers who said they feared that Oracle would pressure them to spend millions of dollars to make an untimely switch to Oracle applications.
“How do I deal with this compelling testimony from all these customers who got on the stand and testified?” Walker asked Oracle lead attorney Daniel Wall.
Wall tried to assure Walker that Oracle would have no interest in alienating PeopleSoft customers after spending $7.7 billion to acquire the company. Oracle would provide continuing support for PeopleSoft products, Wall said.
Walker wondered aloud how he might reach a decision when the expert witnesses who testified in the trial “have forgotten more about” enterprise applications software “than I will ever know.”
But one thing was clear. Nobody comes off in this legal affray as a shining white knight.
PeopleSoft has been playing the role of a scrappy, vulnerable competitor fighting to retain its independence against a greedy and predatory Oracle.
But its clear that PeopleSoft was prepared to make a deal with Oracle if it could have had some assurance that PeopleSoft senior executives would still be around to control the support and future development of PeopleSoft applications.
The talks about combining the two companies applications business collapsed when Oracle made it clear that it would insist on an Oracle executive heading the new group.
Next Page: The price of a hostile buyout.
Hostile Buyouts Price
It is ironic that if Oracle and PeopleSoft had agreed to the amicable merger they discussed in mid-2002, the Department of Justices antitrust division might very well have given its blessing to the match.Today, DOJ officials reject this theory. They say that with the enterprise applications software market dominated by just three players, the friendly merger of PeopleSoft and Oracle would have been as illegally anticompetitive as Oracles hostile bid in June 2003. The market facts and legal logic would have been the same, and the government would have acted to block the buyout.
But there is one key variable in this scenario. In June 2003, PeopleSoft was already in the midst of an amicable buyout of enterprise resource planning rival J.D. Edwards. Oracle was making a bid to acquire two companies for the price of one. Its one thing for two companies to merge without antitrust objections. Its quite another for three to merge into one.
Hostile takeovers have been relatively rare in the IT industry. Companies that are facing increasing market pressure, are losing market share or that dont have the technology portfolio to keep pace with competitors will cast about for a friendly merger on favorable terms.
PeopleSoft was convinced that it needed to form an alliance to ensure that its technology would remain a force in the market for the long term. When it couldnt get the kind of deal it wanted from Oracle, it turned to J.D. Edwards to make a deal that would make PeopleSoft the senior partner. PeopleSoft would gain a broader products portfolio and a deeper customer base while retaining control of is own product line and corporate identity.
Now, PeopleSofts future is in Judge Walkers hands. He almost certainly wishes it wasnt.
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