Oracle Corp. was not the only beneficiary of a federal judge's ruling late Thursday that it could proceed with its $7.7 billion hostile takeover bid for software rival PeopleSoft Inc. Yesterday, the stock prices of numerous software firms surged during widespread speculation that the antitrust ruling could spark a wave of consolidation in the industry.
The ruling by U.S. District Court Judge Vaughn R. Walker in San Francisco concluded that the market for business software involves numerous players and is highly competitive. The judge rejected arguments by the Justice Department that Oracle's proposed acquisition of PeopleSoft would so reduce the field of contenders that companies would have little incentive to innovate or compete on price.
The stock prices of Oracle and PeopleSoft jumped on the news yesterday, as did shares of other major software companies, including ADP Inc., International Business Machines Corp., Microsoft Corp. and Germany's SAP AG.
During the trial, evidence emerged that various software firms, including Microsoft, had considered major takeovers to keep pace with Oracle. The judge's ruling diminished the likelihood that the Justice Department would challenge fresh deals in the software sector, analysts said, while providing a legal roadmap for how to analyze potential transactions.
"The Gavel Falls; Let the Consolidation Begin!" wrote Robert C. Stimson, an analyst with Banc of America Securities. "We view this as the first step in a major consolidation wave within software that will occur over the next 2-3 years."
Thomas Ernst, an analyst with Deutsche Bank, echoed that sentiment: "Large-scale mergers such as Oracle/PeopleSoft could become more common, given the precedent established by this trial.".
To prevail in its long-running hostile takeover bid for PeopleSoft, Oracle would need to receive regulatory approval from the European Union. It eventually could be forced to increase the price of its pending $21-a-share offer by several dollars, analysts said. PeopleSoft stock closed yesterday at $19.79 per share, up $1.84, while Oracle shares rose 53 cents per share to $10.46.
PeopleSoft could seek another buyer, enabling PeopleSoft chief executive Craig A. Conway to thwart the aggressive takeover efforts of his former boss -- and now nemesis -- Oracle chief executive Lawrence J. Ellison. The court's ruling, Conway wrote to employees, "does not mean that Oracle will acquire PeopleSoft."
Conway said that PeopleSoft still intends to pursue a $1 billion lawsuit against Oracle. "We believe that we can prove to a jury that Oracle intentionally engaged in unfair business practices in connection with its offer, including a deliberate campaign to mislead our customers and prospects, and disrupt our business," Conway wrote. "During the course of the recent antitrust trial, internal Oracle documents came to light demonstrating that Oracle's strategy was as we believed all along -- to create confusion and let PeopleSoft 'twist in the wind.' "
Oracle declined to comment yesterday. The firm is slated to release quarterly earnings and discuss the takeover next week.