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DOJ Staff Pans Oracle/PeopleSoft Takeover

Antitrust lawyers of the U.S. Department of Justice (DOJ) recommended against Oracle's $9.4 billion takeover attempt of rival PeopleSoft, in what could be a major setback for the enterprise software company.

In a statement, PeopleSoft said the DOJ had issued a preliminary finding and that the DOJ expects to come to a conclusion about the acquisition by March 2.

The staff at the DOJ submitted their recommendation to block the deal to assistant attorney general Hewitt Pate for final approval. Pate is empowered to make the DOJ's final decision regarding PeopleSoft's fate and those in his position have a history of taking the recommendations of the DOJ staff.

If Pate agrees with the other attorneys, the DOJ will file an injunction to block the deal. Oracle would then have likely appeal and take on the DOJ in federal court.

DOJ spokesperson Gina Talamona would neither confirm nor deny the DOJ's staff's finding and said the DOJ would not comment on internal processes. A person familiar with the process told internetnews.com Pate is expected to meet with Oracle and its legal team before making a decision.

Oracle followed with its own press statement but only alluded to the notion that the DOJ's preliminary decision was in PeopleSoft's favor. Oracle lead counsel James Rill conceded that the recommendation was sent to Pate, but didn't address its contents.

"[The decision] will take into account not only the recommendation of the investigating staff, which we understand was forwarded to the Assistant Attorney General today, but also facts and arguments presented to senior Division decision makers by the merging parties," said Rill.

The closest Rill came to acknowledging that the DOJ staff motioned to block the deal came in his assertion that "over the course of my 45 years of antitrust practice I have seen many instances in which the Assistant Attorney General's decision differed from that recommended by the investigating staff. This process simply is not complete," Rill said.

Oracle spokesman Jim Finn repeated the Redwood Shores, Calif.' company's mantra. "While no decision has yet been made, Oracle believes this merger will eventually be approved," Finn said.

Observers see other scenarios.

Ken Marlin, managing partner of New York-based Marlin & Associates, a mergers and acquisitions investment bank focused on media and technology, said he didn't know if the recommendation was actually made.

Marlin found it curious that PeopleSoft stated definitively that the preliminary decision was in its favor, while Oracle didn't concede the setback in its own press statement. After all, he told internetnews.com, it was Oracle who submitted its bid to the DOJ for approval -- not PeopleSoft.

The prevailing logic is that Oracle would hear from the DOJ and issue statements first, followed by reaction from PeopleSoft. Instead, the exact opposite took place late Tuesday night. Moreover, PeopleSoft spokesman Steve Swasey told internetnews.com Tuesday afternoon that PeopleSoft did not expect to hear from the DOJ.

"I don't know that that's true," Marlin said of PeopleSoft's assertion that the DOJ staff had relayed a decision to Pate. "The DOJ shouldn't be giving the information to PeopleSoft. Oracle made the filing, so they would be likely to hear from the DOJ. Oracle doesn't like those things to leak."

Marlin was also confused by the paucity of facts.

"Assuming that it's true [that the DOJ staff relayed a decision to Oracle and PeopleSoft], it's also being positioned as black or white, and a thumbs down, fill it or kill it decision is rarely that black and white. Normally the DOJ expresses the view that a certain business combination might work. Or, I'd expect the DOJ to cite specific concerns with certain product lines."

Mike Dominy, analyst with the Business Applications and Commerce practice at The Yankee Group, called the decision a blow to Oracle's nearly nine-month-old attempt to buy its Pleasanton, Calif.-based rival, but hardly an insurmountable obstacle.

"My sense is that Oracle still has room to maneuver," he said, noting that an Oracle appeal would likely be forthcoming in the event of a decision not in its favor. He also echoed Marlin's sentiments about an alternative business combination, in which the DOJ might approve the acquisition should Oracle make concessions, such as divesting J.D. Edwards from PeopleSoft.

"The question becomes: is there a question is there any scenario in which Oracle and PeopleSoft can be combined that would be agreeable," Dominy said. "So there is little more of this to play out. It's not a black and white issue."