Experts Say U.S.’ Oracle Case Can Go Either Way

Following closing arguments Tuesday, the future of Oracle Corp.’s $7.7-billion takeover bid for rival PeopleSoft Inc. rests with a federal judge whose decision could encourage more technology industry mergers.

U.S. District Judge Vaughn Walker will rule within two months in the Justice Department’s closely watched antitrust case challenging a union between the two makers of business software.

An Oracle win would “probably spark a lot of questions from businesspeople to lawyers saying ‘Can I do this, can I do that,’ ” said antitrust attorney Alan Silberman of Sonnenschein Nath & Rosenthal in Chicago. “There may be a tendency to be a little more bullish.”

A government win, on the other hand, might not reduce the number of tech company mergers and acquisitions, legal experts said. That’s because the two sides pursued different legal strategies in the monthlong case.

The Justice Department attacked the potential combination of Redwood City, Calif.-based Oracle and Pleasanton, Calif.-based PeopleSoft with evidence from customers who fear higher prices if Oracle and SAP of Germany become the principal suppliers to big corporations of software for complex business tasks.

The government’s case focused on a piece of the software market that accounts for just a few hundred million dollars in annual sales. Oracle posted sales of $10.1 billion in 2003; PeopleSoft $2.3 billion.

If Walker sides with the government, experts said, it will probably be because he accepts its version of the facts in the case. Those could be difficult to apply to other companies competing in different industries.

But Oracle has concentrated its defense on legal theory, in particular how markets are defined and the pricing power of any firm in a rapidly changing industry.

Oracle argued that the government defined the market too narrowly, since mid-size customers buy essentially the same programs as big customers. The company also argued that it faced threats not just from SAP, but from Microsoft Corp., specialized outfits and low-cost outsourcing firms.

If Walker agrees with Oracle’s reasoning, it could be good news for other acquisitive software companies, said antitrust law professor Herbert Hovenkamp of the University of Iowa.

“The bigger the market is, the easier it is to get away with a merger,” Hovenkamp said. “It certainly could have some carry-over into other software products.”

Some observers of the proceedings said Oracle did a good job of framing the market question.

“Going into this trial, we probably gave it at most a 30% probability of Oracle winning,” said Brendan Barnicle, who follows the company for Pacific Crest Securities. “Now I would say there’s a 30% probability of Oracle losing.”

American Technology Research analyst Donovan Gow agreed that Oracle’s approach had held up better than many had thought possible.

“Most investors looked at it as pretty much a Department of Justice slam dunk, but now I think it’s a pretty hard decision to call,” Gow said. “I’m not necessarily saying that Oracle’s going to win, but it was 90-10 and now it’s closer to 50-50.”

Not everyone gave Oracle such strong odds.

“I think the government looks pretty good,” said Robert Doyle, an attorney at Sheppard, Mullin, Richter & Hampton in Washington, who is monitoring the case on behalf of investor clients.