Oracle has triumphed in many more ways than one with the U.S. District Courts decision to deny the Justice Departments request for a permanent injunction against its buyout of PeopleSoft.
But this decision could prove to be just one skirmish in what has been a long, complicated and costly campaign to determine whether PeopleSoft will survive as an independent company.
The injunction would have been the quickest relief PeopleSoft could expect from the interminable and debilitating fight to fend off Oracles takeover bid.
But U.S. District Judge Vaughn Walkers decision last week showed that the government built its case on a weak foundation of vague and arbitrary market definitions. In fact, the government failed to prove nearly all of its key legal assertions.
It failed to prove that the relevant market for ERP (enterprise resource planning) software was limited to Oracle, PeopleSoft and SAP. The market should include a handful of mid-market players such as Microsoft, Lawson Software and ADP, Judge Walker found.
It also failed to prove its curious assertion that, for the purposes of this antitrust trial, the ERP market is not global, but is instead limited to the United States because thats where the competition among Oracle, PeopleSoft and SAP was the most intense.
Having failed to prove each of these assertions, the government could hardly demonstrate that if Oracle succeeded in buying out PeopleSoft it would be in a position, either on its own or in collusion with SAP, to control prices in the U.S. market for ERP software.
R. Hewitt Pate, assistant attorney general in charge of the Justice Departments antitrust division, says it is “considering its options” in terms of whether there are any promising avenues for appeal. But that approach hardly seems viable, considering that the courts decision totally demolished the governments case.
PeopleSoft legal maneuvers
Barring any lengthy appeal process, PeopleSoft is now left to its own devices in fending off the buyout. Its legal defenses are formidable and include a poison pill that would flood the market with extra PeopleSoft shares if Oracle succeeds in acquiring a certain portion of the companys stock. PeopleSoft also instituted a program promising to repay customers between two and five times their license fees if Oracle ends technical support for the products within a specific period.
PeopleSoft is also suing to block Oracles $7.7 billion stock tender offer on the grounds that it is damaging PeopleSofts business. The European Commission is also due to rule on whether the proposed buyout would violate its regulations on business competition.
But European regulators tend to closely monitor U.S. court decisions. The trial findings could decisively influence the European Commission to approve the Oracle buyout. Furthermore, European regulators could take the view that the PeopleSoft buyout would hardly be harmful in a European ERP software market where where Germany-based SAP is the leading player.
This unending legal battle of attrition tends to favor Oracle rather than PeopleSoft. Its possible that the legal maneuvering could continue for yet another year without shareholders ever getting a chance to vote on whether they want to sell the company to Oracle.
That suits Oracle perfectly. The longer it can keep PeopleSoft off-balance and on the defensive, the more time Oracle has to improve its own competitive position while wearing down its rivals resistance.
The time may eventually come where PeopleSoft finds that the cost of continuing the fight, in terms of business disruption and management distraction, is no longer worth it. PeopleSoft will be forced into Oracles arms if it finds that it is losing customers and market share while the legal battles continue.
By early August, PeopleSoft reported that it had spent more than $70 million in its effort to fend off the Oracle buyout. In July, the company reported that it missed lowered revenue targets, with management stating that the uncertainty of the buyout battle was a factor in sales talks with customers.
If this trend continues, in subsequent quarterly reports PeopleSoft may find it will be increasingly difficult to resist the buyout. PeopleSofts June 2003 buyout of J.D. Edwards was supposed to give PeopleSoft the customer base and technology assets to remain independent in a market that was ripe for consolidation.
Oracles own ERP applications were far from dominant in the marketplace. The company remains a database company with its applications as just the frosting on the cake. The long-term viability of Oracles applications business was threatened by vigorous competition from SAP and the PeopleSoft-JD Edwards combination.
Oracle is in a position of having to pull off the PeopleSoft buyout or sit by to watch its own sales growth stagnate as the database market continues to mature.
PeopleSoft believes that if it can eventually fend off the buyout, it will have consolidated its position as the top U.S. ERP software producer, keeping Oracle in a tertiary position behind PeopleSoft and SAP. Thats why no one should expect to see PeopleSofts management waving the white flag any time soon.
But this battle could prove to be so bruising to both companies that in the end they will only succeed in improving the competitive position of SAP, and perhaps even that of Microsoft, rather than their own.
eWEEK.com Enterprise Applications Center Editor John Pallatto is a veteran journalist in the field of enterprise software and Internet technology.