Hawaii joins
Oracle suitThe government said the takeover
would eliminate competition between
two major software providers
SAN FRANCISCO -- Business software maker Oracle Corp.'s ferocious fight to acquire rival PeopleSoft Inc. is turning into a government showdown now that the U.S. Justice Department has gone to court to block the hostile $9.4 billion bid.
Seven states, including Hawaii, joined the Justice Department in a lawsuit filed Thursday that contends a combination between Oracle and PeopleSoft would stifle competition in the $20 billion market for business applications software _ the computer coding that automates a wide range of administrative tasks.
The antitrust challenge represents a major blow for Oracle, which has been stalking its rival for nearly nine months, and a coup for PeopleSoft, which rallied its customers to help persuade the Justice Department to derail the deal.
Many of PeopleSoft's apprehensive customers are government agencies, a factor that probably helped sway the Justice Department, said Charles Biggio, a New York lawyer who used to work in Justice's antitrust division. "They are basically defending every taxpayer that might have to pay higher prices if this deal went through."
The setback wasn't enough to scare off Oracle, which vowed late Thursday to "vigorously challenge" the Justice Department's suit.
"We believe the government's case is without basis in fact or in law, and we look forward to proving this in court," Oracle spokesman Jim Finn said.
Faced with a new combatant, Redwood Shores-based Oracle is redrawing its battle plans and retreating from a looming face-off with Pleasanton-based PeopleSoft.
Oracle had been preparing a proxy fight to supplant four of PeopleSoft's incumbent directors, but the company decided to withdraw its slate of nominees because the shareholder vote is scheduled March 25 _ well before the Justice Department lawsuit is expected to be resolved.
A court is unlikely to rule on the merits of the government's case for three to six months, Biggio said.
Oracle hoped to elect directors more sympathetic to its bid because PeopleSoft's current board has rejected its offer three times and still can fall back on an antitakeover measure known as a poison pill to kill the deal.
Despite the hurdles facing the company, Oracle extended a March 12 deadline for accepting its offer until midnight June 25. It marked the eighth time that the company has given PeopleSoft shareholders more time to consider its all-cash bid, which now stands at $26 per share.
The offer hasn't enticed many PeopleSoft shareholders so far. Through Thursday, a total of 5.3 million PeopleSoft shares had been tendered, representing just 1.5 percent of the company's outstanding stock.
PeopleSoft CEO Craig Conway called on Oracle to withdraw the offer.
"Both companies should now devote all of their energy to competing in the marketplace to provide better products and services for customers," Conway said.
Industry analysts said Oracle's determination to pursue the bid isn't surprising, given the competitive fire of its CEO, Larry Ellison, a hard-driving billionaire who has never concealed his disdain for losing.
But Ellison runs the danger of alienating Oracle's own shareholders by running up huge legal bills and disrupting efforts to boost its sales. "It's probably in the best interest of Oracle to let this bid die so it doesn't become a distraction moving ahead," said FTN Midwest Research analyst Trip Chowdhry.
Investors have been skeptical about Oracle's chances of buying PeopleSoft since the companies learned two weeks ago that the Justice Department's staff had recommended blocking the deal to R. Hewitt Pate, the assistant attorney general in charge of the antitrust division.
Oracle officials lobbied Pate to bless the deal, arguing that the Justice Department's staff had too narrowly defined the field of competitors in the business software makers.
Pate, though, concluded Oracle, PeopleSoft and Germany-based SAP are such dominant players in the market that customers could be hurt if one competitor is subtracted from the equation.
Having three major competitors spurs bidding wars that benefit customers, Pate said.
"Blocking these deals protects competition that benefits major businesses, as well as government agencies that depend on competition to get the best value for taxpayers' dollars," he said.
Oracle says the Justice Department's analysis ignores dozens of other smaller software companies that offer a limited selection of business software products. The company contends the market is about to become even more competitive with Microsoft Corp., the world's largest software maker, poised to introduce more business software applications.
The Justice Department isn't alone in its misgivings about the deal. The seven states that joined the Justice Department in the suit filed in San Francisco are: Hawaii, Maryland, Massachusetts, Minnesota, New York, North Dakota, and Texas.
The Justice Department's challenge represents an ironic setback for Ellison, who helped spearhead Silicon Valley's fierce attacks on Microsoft as the federal government pursued an antitrust case against that software maker.
