Obstacle Raised to Oracle Bid for Rival

The staff of the Justice Department recommended Tuesday that the U.S. agency seek to block Oracle Corp.’s proposed $9.4-billion takeover of rival software firm PeopleSoft Inc.

Lawyers at the department agreed with PeopleSoft that the union would run afoul of antitrust law, according to PeopleSoft. They forwarded their findings to the head of antitrust enforcement, R. Hewitt Pate.

The company said it was told Pate would make a final decision by March 2.

The staff recommendation dealt a blow to Oracle’s eight-month effort to acquire PeopleSoft against the wishes of its board, which has rejected three successive Oracle offers, the latest of them in the past week.

Pate’s decision will come before PeopleSoft’s annual meeting March 25. That meeting could mark the climax of the battle between Oracle Chief Executive Larry Ellison and one of his former officers, PeopleSoft CEO Craig Conway. Early in the fight, Conway compared Ellison to Genghis Khan.

Shareholders are scheduled to vote on whether to elect board candidates backed by Oracle, which wants PeopleSoft to drop its “poison pill” defense against hostile takeovers.

Oracle said its takeover bid was far from over.

“While no decision has yet been made, Oracle believes this merger will eventually be approved,” said company spokesman Jim Finn.

James Rill, an outside attorney for Oracle, said the company was confident that the senior Justice Department officials would “take ample time to review the facts of this situation with an open mind and meet with Oracle before coming to a decision.”

Ellison said last month that if the Justice Department opposed the takeover he would recommend to Oracle’s board that the company take the matter to court.

The objections by the agency’s staff had been anticipated by investors, who have been willing to sell PeopleSoft shares at several dollars below the latest tender price of $26.

Details of the legal reasoning involved couldn’t be learned late Tuesday. Antitrust experts had predicted it would turn on how the markets at issue were defined.

While Oracle and IBM Corp. are the major makers of database software, Oracle has in recent years been emphasizing new programs that work on top of databases. These programs include systems to handle employee salaries and benefits -- and compete directly with products from Pleasanton-based PeopleSoft.

Oracle’s argument is that the software market is broad and rapidly evolving, and that many different companies compete in different ways.

But looking at it through their lens, the Justice Department lawyers were concerned that a combined Oracle-PeopleSoft would reduce from three to two the number of major suppliers of such business-application software to large companies, people familiar with the recommendation said.

The news of the staff recommendation was made public after the market closed. Oracle closed up 11 cents Tuesday at $13.39 and PeopleSoft was down 53 cents at $21.69. Both are listed on Nasdaq.

Bloomberg News was used in compiling this report.