A federal judge ruled yesterday that the Justice Department erred in seeking to block Oracle Corp.'s proposed hostile takeover of PeopleSoft Inc., giving a boost to Oracle's efforts to snare its smaller software rival.
U.S. District Court Judge Vaughn R. Walker in San Francisco wrote in his opinion that the Justice Department failed to prove its allegation that a takeover would harm competition and violate antitrust laws. Walker 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. Since the takeover fight began more than a year ago, PeopleSoft and its chief executive, Craig A. Conway, have refused to meet with Oracle, saying the deal was anti-competitive and would be blocked.
"With the removal of the U.S. antitrust issue and given our commitment to acquire PeopleSoft, we are hopeful that a transaction can occur," Oracle's chief executive, Lawrence J. Ellison, wrote yesterday in a letter to PeopleSoft's board. "We believe that our offer provides full and fair value and that further delay is not in the best interest of PeopleSoft's stockholders, customers, and employees."
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.
Many analysts questioned Ellison's decision to challenge the Justice Department in court, saying it was unlikely he would prevail and arguing that Oracle was wasting money on lawyers' fees instead of focusing on improving its own business. But Ellison went forward unapologetically, saying the titans of the technology and the legal worlds eventually would come to recognize that he was right by refusing to back down.
Yesterday, Oracle formally extended its $21-a-share offer for PeopleSoft. On Wall Street, the court decision prompted a surge in PeopleSoft's stock price, as investors bet that a takeover was more likely. PeopleSoft shares, which closed during the regular trading day at $17.95, jumped several dollars in after-hours trading, leaving the stock trading between $20 and $21 per share.
Oracle still faces potential legal and regulatory obstacles in its pursuit of PeopleSoft. The proposed takeover has not received antitrust approval by the European Union, and the Justice Department has 60 days to decide whether to appeal yesterday's court ruling.
The judge's decision was a major setback for the government, and specifically, for antitrust chief R. Hewitt Pate, who championed the antitrust case from the day the Justice Department moved to block the proposed deal. The presiding judge, an expert in antitrust law, rejected virtually every argument made by the Justice Department that the deal would have anti-competitive effects in the market for business software.
"We are disappointed in the Court's decision," Pate said in a written statement. "We believe the facts and evidence in this case support our position that Oracle's proposed acquisition of PeopleSoft would result in a substantial lessening of competition. . . . The Department is considering its options."
At times the takeover battle has seemed less like a corporate standoff than a personal feud between Conway and his former boss, Ellison. PeopleSoft still has a number of anti-takeover options in place, including a "poison pill" provision that could make a hostile takeover prohibitively expensive.
Following the ruling yesterday, PeopleSoft said it would review the court decision before deciding how to proceed.
"The Board of Directors will review the implications of today's ruling," PeopleSoft said in a written statement, adding that the company previously has rejected the pending $21-a-share offer as too low.
PeopleSoft also reiterated yesterday that it still is seeking compensatory damages of more than $1 billion plus punitive damages in a lawsuit against Oracle that is slated to go to a jury trial later this fall. PeopleSoft alleged in the lawsuit that Oracle's takeover bid was a ploy to unfairly mislead the company's customers and disrupt its business by creating uncertainty about its future.
In reviewing the Justice Department's antitrust decision, Walker used charts, graphs, citations of law and portions of court transcripts from the month-long trial to argue that extensive competition exists in the software markets where PeopleSoft and Oracle overlap. In addition, he stressed that Microsoft Corp., Lawson Software Inc., Germany's SAP AG and other firms would all compete with a combined Oracle-PeopleSoft and preclude the combined company from having undue pricing power.
In addition, the judge wrote that the Justice Department failed to prove that Oracle and SAP would act in a coordinated fashion that would diminish serious price and product competition among the biggest players in the marketplace.
"Plaintiffs have not shown by a preponderance of the evidence that the merger of Oracle and PeopleSoft is likely substantially to lessen competition," the judge wrote.