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Oracle's Takeover Bid Still Faces Hurdles

By Michael Singer     Feedback

The Justice Department mulls whether to appeal a federal court's ruling allowing Oracle's hostile bid for PeopleSoft, which so far, intends to fight. Ruling Allows Oracle Bid For PeopleSoft

A federal judge has cleared the way for Oracle's $7.7 billion hostile takeover bid for PeopleSoft, but the plan still has many hurdles ahead.

U.S. District Court Judge Vaughn R. Walker issued his 164-page ruling late Thursday saying the antitrust suit filed by the U.S. Department of Justice did not convince him that the takeover would harm competition in the market for certain enterprise software applications. The DoJ said it was disappointed with the decision but it now has 60 days in which to appeal the judge's ruling.

Despite escaping the DoJ's suit this time, Oracle is not dancing in the streets just yet. PeopleSoft still has a shareholder rights "poison pill" to consider. PeopleSoft's Customer Assurance Program could wreak havoc on Oracle's bank account. And then there is a looming review by the European Commission (the regulatory body of the European Union), which could turn into another antitrust challenge.

PeopleSoft responded late Thursday with a statement that its Board of Directors "would review the implications of the Judge's ruling."

In the meantime, PeopleSoft still has its own legal complaint against Oracle. The case is scheduled to go to trial before a jury in Oakland, California, on November 1, 2004. PeopleSoft's complaint alleges that Oracle has engaged in unfair business practices, including a deliberate campaign to mislead PeopleSoft's customers and disrupt its business. The company is asking for more than $1 billion in compensation plus punitive damages.

Hoping to avoid further legal problems, Oracle chairman Jeff Henley and CEO Larry Ellison sent a letter off to PeopleSoft's board asking that the two sides sit down and broker out a deal. Oracle also extended its tender offer to Friday, September 24, 2004. The offer was previously set to expire at midnight September 10.

"In light of recent trends and events, we urge the Board to reconsider its previous recommendation. We believe our offer provides full and fair value and that further delay is not in the best interests of PeopleSoft's stockholders, customers, and employees," the letter from Oracle said.

It is uncertain what PeopleSoft will do now. Historically, the Board has unanimously rejected each of Oracle's offers, including its current offer of $21.00 per share. On May 25, 2004, the Board concluded that the current offer was too low after consulting with its financial advisors Citigroup and Goldman, Sachs.

But, a source close to the Pleasanton, Calif.-based company told internetnews.com employees are very concerned about their chances in appeals court and talk of a takeover by another company is running rampant.

While it might seem strange that someone would try to snatch PeopleSoft from under Oracle, as previously reported, Bill Gates asked Microsoft's Steve Ballmer in an e-mail to consider taking a financial stake in PeopleSoft to keep Oracle from taking the reins. The Redmond, Wash-based software vendor later considered a $65 billion plan to acquire German-owned SAP AG .

Robert Christopher, an attorney with Coudert Brothers LLP, and who has been following the case, said Judge Walker's opinion is "both consistent with his fundamental political philosophy that government activism in business decisions normally ought to be avoided, and consistent with prevailing conditions and sentiment in a still-struggling Silicon Valley."

The government's case tried to prove that the hostile takeover would limit customer choices to just Oracle and market leader SAP creating a monopoly in the enterprise resource planning (ERP) market. Those tools include Human Resource Management and Financial Management Services. Throughout the trial, Judge Walker questioned the DoJ's position while analysts criticized the government for oversimplifying the definition of top-tier and mid-tier ERP players.

In his opinion, Judge Walker said the DoJ may have succeeded in proving the relevant product market does not include incumbent systems or the integration layer.

But the Judge said the government failed to prove that outsourcing solutions, best of breed solutions and so-called mid-market vendors should be excluded from the relevant product market. Furthermore, Judge Walker said the DoJ failed to establish that the area of effective competition is limited to the United States.

"From a technical legal perspective also, Judge Walker's analysis cannot be said to be unfounded or unsound," Christopher told internetnews.com. "Most antitrust lawsuits that fail do so because the relevant market is found, upon disputed evidence, to be broader than what the plaintiff has claimed. That is what has occurred here."

Consequently, Christopher continues, the decision almost certainly will hold up if it were sent back on appeal.

"The federal government should think long and hard before committing more resources, energy, time and tax dollars to a lost cause," Christopher said.

"The principal findings are in large part factual and therefore will be given considerable deference by the Ninth Circuit. Regrettably, however, the opinion ignores the intuitive and practical reality that if Oracle succeeds in taking over PeopleSoft, there will be significantly less choice and less competition in the large enterprise software marketplace, whether that marketplace is geographically defined as domestic or global."

This article was originally published on September 10, 2004
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