U.S. Regulators Oppose Oracle’s PeopleSoft Bid
The Justice Department delivered a crucial blow Thursday to Oracle Corp.’s proposed $9.4-billion hostile takeover of rival PeopleSoft Inc., saying it would oppose the bid on grounds that it would result in “higher prices, less innovation and fewer choices” for customers.
Federal antitrust regulators said the department had joined the attorneys general of seven states in suing Oracle to block the database giant’s tender offer for business software maker PeopleSoft.
“We’ve heard from a large number of important customers who think this deal will deprive them of competition if this deal goes forward,” said R. Hewitt Pate, head of antitrust enforcement at the Justice Department. “The evidence is clear that we have a product that only three firms are in a position to provide.”
Pate counted Oracle, PeopleSoft and SAP of Walldorf, Germany, as sole competitors in the market for software that handle such tasks as payroll, accounting and inventory management.
Oracle derided the Justice Department’s decision as being “without basis in fact or in law” and said in a statement that it was the result of “an aggressive lobbying campaign by PeopleSoft management,” which is bitterly opposed to the deal. Oracle has argued that the Justice Department’s view of the market should also include Microsoft Corp., which also sells similar so-called enterprise software.
After meeting Thursday afternoon, Oracle’s board decided to challenge the Justice Department in court, something Chief Executive Larry Ellison had long vowed to do.
“The department’s claim that there are only three vendors that meet the needs of large enterprises does not fit with the reality of the highly competitive, dynamic and rapidly changing market,” Oracle spokesman Jim Finn said.
PeopleSoft executives hailed the regulators’ decision.
“It is time for Oracle to abandon its efforts to acquire the company,” said PeopleSoft CEO Craig Conway, who has likened Ellison to Genghis Kahn.
PeopleSoft has brushed aside three offers from Oracle. The latest valued the Pleasanton, Calif., company at $26 a share. That was a 19% premium over Thursday’s closing price of $21.78, which was down 35 cents on Nasdaq. Oracle rose 9 cents to $13.28, also on Nasdaq.
Redwood City, Calif.-based Oracle can either fight the case in federal court or restructure its acquisition plan to address regulators’ concerns, said former Federal Trade Commission attorney Keith Shugarman. Either way, Oracle will have a tough slog, he said.
“Generally speaking, the government wins the majority, but not all, of the merger challenges that it brings,” said Shugarman, now an antitrust lawyer with Goodwin Procter in Washington. “So it’s not a futile exercise. Judges are just people too, and they all react in different ways. But it’s certainly going to be an uphill battle.”
The Justice Department’s decision has been expected since staff lawyers recommended two weeks ago that the deal be opposed because of antitrust concerns. Its suit, filed in U.S. District Court in San Francisco, was joined by attorneys general from New York, Texas, Massachusetts, Maryland, Minnesota, Hawaii and North Dakota. Pate said he hoped to get a ruling by the end of the year.
The European Union also is evaluating the antitrust implications of Oracle’s hostile bid.
Federal opposition already is having an effect. Oracle said Thursday that it was abandoning its attempt to elect a slate of directors to PeopleSoft’s board that would favor the merger because the lawsuit would not be resolved before PeopleSoft’s annual meeting March 25.
Oracle also extended its tender offer to June 25. But the chances of winning over PeopleSoft shareholders have declined, said David Hilal, an analyst with Friedman, Billings, Ramsey.
“If PeopleSoft shareholders think the merger is going to get hung up, they’ll think twice” about supporting it, Hilal said. “It’s not the end of the game, but it’s a pretty big blow to Oracle.”
Oracle shareholders may think twice too.
“There will be a lot of pressure on Oracle from its shareholders to pack up and go home,” said Ken Marlin of Marlin & Associates, a technology and media investment bank in New York. “To continue the fight now will be costly, take a long time, and the out come is uncertain.”
