RealTime IT News

Deadline Dwindling for Oracle Merger Quiz

As the Oracle/PeopleSoft war of words and allegations wears on, Monday is the deadline for the U.S. Department of Justice (DOJ) or Federal Trade Commission (FTC) to request a secondary request for information from Oracle , which is seriously pursuing a hostile merger with PeopleSoft for an estimated $6.3 billion.

This past week has been relatively quiet in the sense that there have been no legal filings or ramped up suits from PeopleSoft, who is trying to fend off Oracle, which said it is intent on becoming the No. 2 enterprise applications vendor to SAP .

Oracle meanwhile has softened its stance a bit, dropping its condition that PeopleSoft not alter its bid for mid-market applications vendor J.D. Edwards. This was somewhat anticlimactic as PeopleSoft had already raised its bid from $1.7 to $1.75 billion. From its AppsWorld show in London, the Redwood Shores, Calif. outfit also said it would consider purchasing J.D. Edwards as well as PeopleSoft. Such a move would make it a powerful competitor to SAP, while at the same time keeping Microsoft's rising applications star at bay.

But PeopleSoft hit hard a couple weeks back when it said it objected to the deal in great part because of regulatory issues, ostensibly raising the specter of possible antitrust violations. The Pleasanton, Calif. vendor vehemently argued Oracle would eliminate its business, hurting customers in the process.

"Oracle's true intent in making the tender offer was to undercut PeopleSoft's business operations by disparaging PeopleSoft's products, services, and future prospects, undermine PeopleSoft's viability by creating uncertainty and doubt in the minds of PeopleSoft's customers and prospective customers, and interfere with PeopleSoft's plan to merge with J. D. Edwards and Company," PeopleSoft alleged in a filing. "PeopleSoft also alleges that Oracle's accompanying media campaign grossly misleads the market concerning Oracle's ability to provide continuing support to existing PeopleSoft customers, and fails to disclose the substantial obstacles and costs facing PeopleSoft customers that would need to migrate to an Oracle platform."

"Considering the high-profile nature of this transaction and the fact that the Department of Justice just received the case less than two weeks ago, we fully expect to receive a second request," said Jim Finn, an Oracle spokesman. "We remain very optimistic that DOJ will conclude that this transaction isn't anticompetitive and that we will complete the transaction in a timely manner."

When one considers the controversy Oracle raised with its bid and PeopleSoft's reaction, there isn't a straighter line for the consideration of the possibility of antitrust violations.

Rob Christoper, an attorney at Coudert Brothers in Palo, Alto, Calif., specializes in litigation on intellectual property, antitrust and general business disputes for technology companies and financial institutions, among other fields. Christopher said he thinks it is highly likely the DOJ or FTC might issue a secondary request for information on Oracle's bid.

He compared it to the government intervention of the Staples/Office Depot merger in 1997, when the FTC voted 4-1 to kill the merger, which would have married two of the most powerful entities in the office supply space, creating a $10 billion company. Sure, the two said the merger would drive down product prices, but the FTC disagreed.

"This sounds or smells like the Staples/Office Depot merger that the government ended up halting a few years back," Christopher said. "There are a lot of smaller companies that sell office equipment that would have been hurt."

But in the Oracle/PeopleSoft case, Christopher said, the DOJ and FTC are going to look at how the Oracle bid for PeopleSoft will truly benefit the customer more closely than how it might hurt other companies in the multi-tiered space. Christopher doesn't think Oracle has done that adequately enough. And although Oracle has certainly softened its stance by offering to support PeopleSoft products in the future and waive certain conditions, Christopher doesn't buy it.

"Talk is cheap," Christopher said. "I'm going to go by what they said at the outset, which was that they would stop making PeopleSoft products and help customers migrate to their software. That might be the most telling evidence the regulatory bodies have to go by. I don't care how much they've softened their stance since then. Who's to say they won't turn around and discontinue PeopleSoft products if the merger went through?"

"On the other hand, one could argue that there would not be a significant impact -- that Oracle is filling a void by buying PeopleSoft," Christopher said, playing devil's advocate to his gut feeling. "There is merit to that. It's such a dynamic industry."

Attorney Ken Marlin, who runs high-tech consultancy firm Marlin & Associates in New York City, doesn't think PeopleSoft has an argument about antitrust issues. He simply feels the market is too broad for the DOJ or FTC to say that Oracle is dipping into the antitrust sea, which though somewhat new to high-tech, has certainly washed over Microsoft in the last few years. But that Redmond, Wash. software giant is still standing tall, even if it did take its lumps in the media. Most recently, it scored a key victory in court to keep Java out of Windows.

"I think that there is a common misconception amongst lay people that the business definition of antitrust can be narrowly defined to those firms who provide similar products," Marlin said. "This may not be the way the Justice department defines the market. The Justice Department will look at other people who provide enterprise application software currently, or who could, or are likely to, such as Microsoft, and I think they will see a very large market that is highly-fragmented. When one looks at the total size of the market concentration and looks at how that concentration will change as a result of transaction, I don't think they will find cause for antitrust."

But Christopher said the regulatory bodies will look to see if there "is an improvement in consumer welfare."

"That is the principle goal under antitrust laws," Christopher said. "What's going to happen here is a determination by the Justice Department or FTC -- and it is usually one of them who will take the lead on this -- is if there is a certain gain in operating efficiency. If they can't find that, they might see it as a move by Oracle to eliminate its major competitor in the enterprise software arena."

Christopher said certain actions may steer the regulatory bodies toward asking for more info, particularly Connecticut's suit against Oracle for antitrust activities. He said this is because Connecticut, as a customer of PeopleSoft, feels threatened. Moreover, several other states attorneys general, including those of Texas, Massachusetts and California, have spoken via conference call to discuss similar actions this week.

"They fear the elimination of products and services," Christopher said. "That makes me think that the DOJ or FTC might pay attention to this. If I'm the DOJ or FTC, I'm going to ask Oracle for internal documents. I want to know how they perceive the market and how just how broad it is. I might ask 'What is truly the relevant product market? Does Oracle see this as a move to consolidate a market?' And I would expect Oracle is prepared to deal with that. The toughest issue is always product analysis. Either they'll see that Oracle perceives the market as a small number of companies that generates the majority of revenue in this space, or a large number of companies with different percentages of market share. Obviously, they want to convey the attitude that they see the market as the former as opposed to the latter."

If there is one thing that Christopher and Marlin are in agreement on, it's that the if neither the DOJ nor the FTC do request additional information from Oracle, it signals that they are not concerned that Oracle is in danger of violating antitrust laws such as the Clayton Act. That could open the floodgates for Oracle to bear down on PeopleSoft, and give the board and its shareholders the full court press until they capitulate.

In that event, the legal experts say, all bets are off. Marlin said there is an outside chance IBM could come to PeopleSoft's rescue -- in a sense it would be protecting its own investment with its deep partnership with PeopleSoft -- but he said this is unlikely. And IBM has not spoken publicly about what it calls a "rumor."

"IBM is big enough and they might like the White Knight label," Marlin said. "But there is no indication of them doing it."