Oracle Wins Antitrust Suit

Judge Vaughn Walker of the U.S. District Court of San Francisco ruled yesterday against the Department of Justice (DoJ), whose antitrust squad challenged Oracle's unsolicited takeover bid of enterprise software rival PeopleSoft. However, the acquisition drama, launched in June 2003, is far from over. "This doesn't mean the deal is going to happen--there are other obstacles Oracle has to negotiate, but this is a major hurdle that's been removed," says Paul Hamerman, vice president of Forrester Research. According to Hamerman, Judge Walker found the DoJ's arguments that SAP was the only other significant competitor to Oracle and PeopleSoft unconvincing, citing firms such as Lawson and ADP as suitable alternatives in the enterprise financial and human resources software space. Although it was not a primary point of contention in the antitrust case, PeopleSoft and Oracle also have significant competition in enterprise CRM, from players like SAP, Siebel, and Amdocs. Among the challenges in store for Oracle is bitter opposition from PeopleSoft management and directors, who have generally refused to negotiate with Oracle. PeopleSoft has sued Oracle, alleging that the acquisition bid interfered with its business processes. EU regulators must also have their say, and it is not unprecedented for EU regulations to shut down deals approved in the U.S., as happened to a planned GE/Honeywell merger in 2001. PeopleSoft still has a number of poison-pill provisions available, including a Customer Assurance Plan that provides for large rebates far in excess of actual software costs in the event PeopleSoft is acquired. Oracle or any other purchaser could be in for an estimated $2 billion in costs if such a plan took hold, although Oracle has challenged that contract provision in court. In addition the DoJ has 60 days to appeal the decision, and Judge Walker's ruling will not go into effect until September 19 to give the DoJ time to prepare an appeal. Despite the enormous legal costs mounting for both companies, it remains just as important to Oracle to buy PeopleSoft as it does for PeopleSoft's management to avoid the purchase. "[Oracle] wants to take a major competitor out of play so they don't have to compete with them," Hamerman says. "[Oracle's] business model is based on maintenance revenues, and PeopleSoft has about $1.3 billion in annual maintenance revenues. That's the revenue stream Oracle wants to leverage." Lee Geishecker, research vice president at Gartner, says that a final resolution will not come for "months and months." Customers of both companies will simply have to wait and see. "PeopleSoft customers can see a letter [from Oracle] saying [Oracle] will continue to support the [PeopleSoft] product for maybe ten years, but they need to know, what does support mean? Oracle customers have to look at the disruption of business--how much has Oracle taken their eyes off the ball?" Related articles: Merger Storm on the Horizon? PeopleSoft CEO Conway Says Fighting Oracle Has Cost Millions Oracle Lowers its Offer for Rival PeopleSoft