Regulators Launch Full Investigation of Oracle’s Hostile Bid to Buy PeopleSoft

The Justice Department complicated Oracle Corp.’s proposed $6.3-billion hostile takeover of PeopleSoft Inc. on Monday by signaling that it has launched a full investigation into the antitrust ramifications of combining two of the top three business-software makers.

The inquiry could delay Oracle’s ability to execute its unsolicited cash tender offer, which stands at $19.50 a share. It also could make it more difficult for Oracle to persuade PeopleSoft’s board -- which has twice rebuffed Oracle’s overtures -- to consider a friendly bid.

PeopleSoft executives said the Justice Department’s request Monday for more information from Oracle about its hostile bid validated their belief that regulators would quash a deal.

“We’ve said all along that the proposed combination between Oracle and PeopleSoft faces substantial regulatory delays and significant likelihood that the transaction would be prohibited,” PeopleSoft spokesman Steve Swasey said.

But PeopleSoft is facing antitrust scrutiny of its proposed amicable $1.7-billion merger with smaller rival J.D. Edwards & Co., which was announced days before Oracle launched its takeover campaign for PeopleSoft.

“We’re investigating both transactions,” Justice Department spokeswoman Gina Talamona said.

Redwood City, Calif.-based Oracle is the second-largest seller of complex software packages that handle back-office functions such as payroll and benefits. PeopleSoft, of Pleasanton, Calif., and Denver-based J.D. Edwards are the third- and fourth-largest players, respectively, in the $23-billion global market.

Germany’s SAP holds the No. 1 spot.

Oracle wouldn’t say what kind of information the Justice Department sought. The company downplayed the significance of the request.

“We were not surprised given the size and scope of the transaction,” Oracle spokesman Jim Finn said.

“We remain optimistic that the Department of Justice will conclude that this transaction is not anti-competitive and that we will complete the transaction in a timely manner.”

PeopleSoft’s Swasey declined to comment on the Justice Department’s queries regarding its proposed merger with J.D. Edwards. The department has until July 11 to decide whether to launch a full investigation into that deal.

Should the Justice Department clear the PeopleSoft-J.D. Edwards merger, the combined company would vault ahead of Oracle as the No. 2 player in the business-software market. That could make it more difficult for Oracle’s bid for PeopleSoft to clear antitrust hurdles.

Analysts said other factors may come into play, including the potential entry of a large competitor such as Microsoft Corp.

“If you look at the possibility that Microsoft enters the market, it makes antitrust action less likely,” said Michael Cooper, an antitrust attorney with Washington law firm Bryan Cave.

Analysts also pointed out that even if all three companies were rolled up in a single business, it still would be smaller than SAP.

The Justice Department “will most certainly take note of that,” said Ken Marlin, managing partner of New York investment firm Marlin & Associates.

Antitrust experts said it was too soon to know how long the Justice Department’s examination of Oracle might take or how regulators would ultimately rule.

“It’s way too early to tell,” said Keith Shugarman, a former antitrust attorney at the Federal Trade Commission who now is a partner at Goodwin Procter in Washington.

“But as long as the government keeps the review period open, Oracle is prohibited from taking down shares tendered for PeopleSoft.”

Oracle shares fell 42 cents to $12.01, PeopleSoft shares slipped 12 cents to $17.56 and J.D. Edwards shares gained 16 cents to $14.38. All three trade on Nasdaq.