Oracle Makes Its Case at Trial

Industry witnesses deny DOJ claims.

As the final week of the U.S. Department of Justices trial to block Oracle Corp.s proposed $7.7 billion acquisition of PeopleSoft Inc. wound down last week, some experts saw signs that Oracle might prevail.

Oracle lawyers presented several witnesses, including the Redwood Shores, Calif., companys CEO, Larry Ellison, who rejected the DOJs central claim—that enterprise software customers would suffer from reduced competition if the deal goes through.

Lawson Software Inc. CEO Jay Coughlin gave testimony that countered the DOJs claim that the enterprise software market consists of just three companies: Oracle, PeopleSoft and SAP AG. Coughlin discussed several recent Lawson deals in which the St. Paul, Minn., company sold its business software to large companies and governmental agencies, including the Mayo Clinic, Safeway Inc., Target Corp. and Walgreen Co.

Ellison testified that PeopleSoft CEO Craig Conway approached him in June 2002 to suggest merging his company with Oracles applications division. Conway said such a merger would be the best way for the two companies to fend off competitive pressures from business applications giant SAP, Ellison testified.

"We thought we would be better able to compete if we joined forces," Ellison said, adding that at the time, he thought it was an "interesting idea."

Although the companies held high-level talks on a possible merger, Ellison said the discussions ended mainly because Conway insisted he would be the sole head of the merged business applications group.

Ellison said that when the initial merger talks broke off, Oracle also talked to J.D. Edwards & Co. about a possible merger but did not actively pursue that avenue.

Shortly before Oracle began to defend the PeopleSoft deal on the previous Friday, Judge Vaughn Walker, of the U.S District Court, Northern District of California, in San Francisco, requested a better explanation of some of the key concepts presented by the feds, including the term "high function" software.

The DOJ defined such software as business applica- tions that are suitable for the largest and most complex organizations—and that are provided only by Oracle, PeopleSoft and SAP. The DOJ argued that should a merger happen between two of those three companies, customers running "high function" software would suffer.

Oracle contends the term was fabricated solely for the purposes of the trial.

Paul Friedman, an antitrust expert, author and partner with the law firm Dechert LLP, said the judges request for clarification is not a good sign for the DOJ. "[The judge] is looking for help," said Friedman in Washington. "Hes in effect saying to the lawyers, and really to the government, that based on what Ive heard so far, youre not there."

Judge Walker is not expected to issue a ruling on the case for at least a month.

Additional reporting by John Pallatto,


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