Oracle to Fight DOJs Attempt to Block Takeover

UPDATED: Oracle's board votes to challenge the DOJ's lawsuit to block its hostile takeover attempt of PeopleSoft, at the same time withdrawing its board slate and extending its tender offer to June 25.

Oracle Corp. is taking on the U.S. Department of Justice.

After the Justice Department, joined by seven states attorneys general, announced Thursday it will seek to block Oracles $9.4 billion takeover of PeopleSoft Inc. by federal injunction, Oracles board of directors voted to challenge the deal.

Oracle also dropped its slate of five nominees for PeopleSofts board of directors—the election is scheduled for March 25—and extended its tender offer to June 25. The previous tender offer was scheduled to end March 2.

Oracle, of Redwood Shores, Calif., had hoped that with its slate of pro-Oracle candidates on PeopleSofts board would remove a "poison-pill" bylaw that also impedes the hostile takeover.

/zimages/3/28571.gifShould Oracle just move on? Read "DOJ Suit Drives Stake Through Heart of PeopleSoft Buyout."

R. Hewitt Pate, assistant attorney general at the Justice Department, said Thursday that a merger between Oracle and PeopleSoft would be anticompetitive, raise prices and lessen innovation in the e-business software sector.

"Through a range of evidence we will demonstrate that the companies who are able to meet the needs [of private and public organizations] are Oracle, PeopleSoft and SAP [AG]," said Pate in a press conference at the DOJs Washington headquarters Thursday. "Thats something of which there has been broad recognition since this transaction was announced. We have developed careful evidence to prove that in court and I think well do that."

Oracle said in a statement it will vigorously challenge the Justice Departments stance on the grounds that its three-vendor claim "does not fit with the reality of the highly competitive, dynamic and rapidly changing market."

In supporting its acquisition attempts Oracle has said the ERP (enterprise resource planning) software market is open to competition from the likes of Microsoft Corp.

Microsoft, of Redmond, Wash., offers a slew of e-business applications for the small and midsized business sector. Its largely anticipated that the company will increase its footprint to include larger enterprises—and to compete with SAP, Oracle and PeopleSoft.

"The day of reckoning arrived with the DOJs announcements," said PeopleSoft spokesman Steve Swasey. He said the DOJs decision underscores what the Pleasanton, Calif., companys board of directors has trumpeted from the onset—that the lack of competition for large enterprise applications would derail Oracles hostile takeover bid.

"We have customers that cant go to other vendors for their needs," Swasey said.

Still, Swasey admitted Oracles aggressive hostile bid has been a monumental distraction. "Imagine what we couldve done without all this going on," he noted.

However, legal experts say that the DOJ faces a steep uphill climb in its attempts to unequivocally show anti-competitive impact in the immense software market.

"Technology has opened up a new frontier of antitrust—its much more difficult to challenge and show competitive problems in these technology markets," said Hillard Sterling, an antitrust attorney with Much Shelist PC in Chicago. "This is nowhere near a slam dunk for the DOJ. [PeopleSoft] should leave the cork in the champagne bottles.

"[The Microsoft anti-trust case] should have taught the government a lesson," Sterling continued. "Its not easy to show antitrust violations in these very competitive markets."

He sees a good chance that the case will be settled before reaching trial, Sterling said, since the DOJs concerns are narrower than the claims Pate trumpeted. Specifically, he said the DOJs likely focus upon individual products and markets rather than the general concept of software opens the door for compromise.

"Its doubtful that Oracle will wave the white flag merely by virtue of the DOJs filing," he said.

But, some lawyers say a settlement is unlikely.

"Typically [a settlement] would be a divestiture of products [or businesses]," said Charles Biggio, former DOJ attorney and partner with Aiken & Gump LLC in New York. "This kind of transaction is kind of hard to see how you could carve out assets and businesses that would satisfy the Department of Justice."

In its investigation, the Justice Department determined that Microsoft will not enter the enterprise market quickly enough to be considered real competition.

Oracle also accused the Justice Department of discounting potential competition from midmarket ERP providers that would move up to fill any gaps left by a successful takeover of PeopleSoft.

"By defining the market in a traditional way and by hearing that customers depend on markets, and on competition—what they had to say—we had no difficulty in determining that filing this suit is the right thing to do," said Pate.

Should the DOJs decision stand, Peter Smith, president of the Ottawa Oracle User Group said he believed Oracle would be forced to go hunting for other prey to boost its application arsenal.

"I think Oracle needs to expand that portion of their business, and the major way to do it is through an acquisition. SAP is too large for them to swallow, so it might be another one of the [application vendors," Smith said. "Oracle needs to diversify more beyond the database and beyond its current Oracle financial applications offering, they need to grow their business [in ways] that the database engine cannot do at this time."

/zimages/3/28571.gifFor more commentary on the DOJ and Oracle, read "Congratulations, PeopleSoft: You Will Not Be Assimilated."