Oracle's Wish Comes True

Oracle is one step closer to taking over rival PeopleSoft now that a federal judge has ruled against the federal government's effort to thwart the $7.7 billion hostile bid over antitrust concerns, a decision that could spark a rash of tech-sector acquisition attempts.

The ruling removes "a major hurdle to one of the biggest mergers in Silicon Valley history," USA Today declared and "is a big blow to PeopleSoft, which has repeatedly cited antitrust concerns as one of the primary reasons for spurning" business software maker Oracle Corp. Yesterday's ruling "represented almost total vindication for Oracle, which has argued for months that first PeopleSoft, based in Pleasanton, and then the Justice Department were misguided to argue the deal would be anti-competitive," the San Jose Mercury News said.

The Justice Department had sued to block Oracle's proposed takeover, but the federal government's case got slammed in the new ruling. "U.S. District Court Judge Vaughn R. Walker in San Francisco ... faulted the Justice Department for defining too narrowly the market for high-end human resources and payroll software and said there would be enough remaining rivals after a merger to assure healthy competition. Walker's decision increases the pressure on PeopleSoft to negotiate directly with Oracle," The Washington Post wrote in its synopsis of yesterday's ruling. "Walker's decision, following a month-long trial earlier this summer, was a stinging -- and rare -- defeat for government antitrust regulators. ... The government failed to prove that large businesses can turn to only three suppliers -- Oracle, PeopleSoft and [German company] SAP -- for business applications software, he found. Rather, he said, other rivals, including Microsoft and technology-outsourcing firms, could constrain anticompetitive actions by Oracle," the Wall Street Journal reported.
• USA Today: Oracle Wins Right to Pursue Rival
• The San Jose Mercury News: Ruling Lets Oracle Pursue PeopleSoft (Registration required)
• The Washington Post: Judge Clears Oracle Bid for Rival (Registration required)
• The Wall Street Journal: Court Says Oracle Can Pursue Bid for PeopleSoft in Antitrust Ruling (Subscription required)

Bloomberg gave some perspective on how Oracle would fare if its merger plans go through. "The purchase would eliminate Oracle's closest competitor and vault the company to number two in the world from number three among providers of business applications software," the wire service said. Meanwhile, the ruling could prove to be a boon for other technology companies shopping around for mergers. "In sweeping aside antitrust objections raised by the Justice Department," the Wall Street Journal reported, Walker's ruling "could serve as a trigger for a long-anticipated consolidation in the $170 billion business software market. After Oracle set its sights on PeopleSoft in June 2003, rivals such as Microsoft Corp., SAP AG and [IBM] Corp. considered mergers of their own."
• Bloomberg via the Boston Globe: Oracle Bid Gets Green Light

The Journal piece later added: "Possible prey in a consolidation wave could be niche software vendors such as Veritas Software Corp., Siebel Systems Inc., BMC Software Inc. and BEA Systems Inc., many of which have recently missed financial targets." USA Today noted the likely consolidation trend: "The software industry 'is ripe for consolidation,' says John DiFucci of Bear Stearns. 'This speeds things up.' With Oracle's surprise victory, many companies considering acquisitions will be emboldened and chew over blockbuster deals, DiFucci and others say."

And from the Financial Times: "Though the U.S. government's case was based on traditional antitrust analysis, the theory has been largely untested in court when it comes to the technology industry, said David Balto, an antitrust lawyer at Robins Kaplan Miller & Ciresi. The judge's ruling that the antitrust regulators had not met the basic market-definition test opens the way to other potential deals in the software industry, he added."
• USA Today: Oracle's Win Could Mean More Tech Mergers in Future
• The Financial Times: Court Rules in Favor of Oracle Over Hostile Bid

The ruling certainly isn't expected to cool the bad blood between Oracle and PeopleSoft. Recall that PeopleSoft chief executive Craig Conway, a former Oracle employee, and Oracle's head honcho Larry Ellison have made a sport out of trading barbs over the hostile takeover bid. PeopleSoft has been fighting to stay out of the clutches of Oracle. But now Ellison has scored a significant match point and it could be difficult for PeopleSoft to avoid Oracle's advances. USA Today reported that Ellison and Oracle Chairman Jeff Henley "wasted no time in firing off a letter to PeopleSoft's board, requesting a meeting to hammer out a deal, potentially the largest tech merger since Hewlett-Packard and Compaq Computer in 2002. PeopleSoft has rejected four bids from Oracle during [the] relentless 15-month pursuit. PeopleSoft says it will review the 'implications' of the ruling. The company is seeking damages of more than $1 billion in a separate lawsuit against Oracle."

The Mercury News said: "In a statement, PeopleSoft showed no immediate signs of backing down from a fight that the company recently said is beginning to drag down its business. After the court decision, the company said its board was meeting to review the ruling and decide on its next course of action. PeopleSoft's board is likely to face increased pressure from shareholders to negotiate with Oracle. Investors sent PeopleSoft's share price soaring in after-hours trading in anticipation that the deal is more likely to happen."

Meanwhile, Ellison is surely basking in the glow of rosy coverage over his legal strategy. "The ruling is a major victory for Ellison, who has argued that the market for business software is stagnant and that the smartest way for his company to grow is through acquisitions," The Washington Post said. From the Journal: "The ruling vindicated Mr. Ellison's bold move for PeopleSoft, and his unusual decision to challenge a government antitrust case. Mr. Ellison has long advocated consolidation among software suppliers, arguing that too many companies are competing for slices of corporate technology spending that is unlikely to ever return to the super-charged levels of the late 1990s."

The San Francisco Chronicle, in one of the hokier lead-ins to coverage, wrote: "Larry fought the law and Larry won." "'It's a historic loss for the Justice Department,' said Gregory Taxin, chief executive officer of San Francisco's Glass, Lewis & Co., which advises institutional investors on proxy votes. 'Rarely have companies challenged the judgment of the federal government on antitrust matters and even more rarely have they won.'"
• The San Francisco Chronicle: News Analysis: Antitrust Case Verdict Is Vindication for Ellison