The Justice Department squares off against Oracle Corp. on Monday in a San Francisco courtroom, where the federal government plans to argue that the company's proposed $7.7 billion hostile takeover bid for PeopleSoft Inc. would hurt competition in the market for specialized business software.
The trial, which attorneys expect to last for about a month, pits Justice against one of the technology industry's most aggressive and colorful personalities, Oracle chief executive Lawrence J. Ellison. For the past year, Ellison -- who is slated to testify at the trial -- has relentlessly pursued PeopleSoft, despite that company's adamant and repeated rejections of his overtures and the federal government's strong misgivings about the deal.
The trial itself is shaping up to be as much of a spectacle as the takeover battle itself. Oracle's bid has produced outbursts of bravado on both sides amid charges and countercharges about whether the software giant really wants to buy PeopleSoft or is just pursuing the software firm to weaken it as a competitor.
During the fight, Oracle initially increased the value of its offer before recently reducing its bid to $21 a share. PeopleSoft stock closed down 8 cents yesterday, at $17.31 a share.
According to pretrial filings, there will be dueling witnesses from Microsoft Corp. The government will be calling on one Microsoft executive to illustrate that the corporation has no plans to ramp up competition by entering the high-end market for automated personnel and financial software, while Oracle will be relying on another Microsoft official to show just the opposite. Both sides also plan to call witnesses from International Business Machines Corp. to bolster their respective positions.
"I've never seen this before," said Gary L. Reback, antitrust counsel to PeopleSoft.
Charles E. Biggio, a partner with Akin Gump Strauss Hauer & Feld LLP in New York who specializes in antitrust law, predicted the case ultimately may turn on the definition of the marketplace accepted by U.S. District Judge Vaughn R. Walker, a Republican appointee who practiced antitrust law before becoming a federal judge.
The government's position is that large, complex enterprises buying sophisticated human resources software have only three vendors to choose from: Oracle, PeopleSoft and Germany's SAP AG. Oracle's acquisition of PeopleSoft, by that logic, would leave only two competitors. If that market definition is accepted, Biggio said, the case is straightforward, because a reduction from three competitors to two is typically deemed a violation of antitrust law.
Oracle, however, plans to argue that the government's definition of the marketplace is flawed, in part because it fails to take into account the presence of other viable competitors and potential entrants. "By claiming to find only three competitors in its alleged markets, Plaintiffs spin this case as a routine police action to stop a 'three to two' merger -- an apparent slam dunk," Oracle said in its trial brief.
"Dozens of billion-dollar plus enterprises have turned to companies such as Lawson, Microsoft, ADP, Fidelity, and AMS" for software to conduct human resource and financial management tasks, the brief said. "The government has simply missed the important competitive forces in this industry."
The government plans to counter Oracle by calling numerous software customers to back up its claims, including DaimlerChrysler AG, Verizon Communications Inc. and the state of North Dakota.
"For Oracle, this transaction is a no-lose proposition," the Justice Department stated in its memorandum to the court. "Oracle seeks to acquire market share and an ongoing revenue stream without competing for it, while concurrently decimating its chief competitor. . . . But even if the transaction is stopped, the effect of Oracle's prolonged and unwelcome assault on PeopleSoft will be to slow PeopleSoft's growth, to the primary benefit of Oracle."
The trial is just one hurdle facing Oracle in its bid. Even with a favorable verdict, it would have to win antitrust approval in Europe and win over PeopleSoft investors. PeopleSoft, meanwhile, has taken several steps to make an acquisition more difficult, including offering customers refunds if the company is bought and its software is no longer supported.
Both sides and legal observers agree on at least one thing: They have a judge sophisticated about antitrust matters presiding over this trial, which will enable them to make arguments based on high-brow economic and legal analysis.
"The judge is experienced in antitrust, and he will understand and credit the analytical points being made by both sides," said Biggio, who served in the Justice Department during the Clinton administration. "Sometimes you have judges that aren't as well versed in antitrust, and their decisions reflect that. Judge Walker will decide the case on the proper antitrust analysis."