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DoJ to Block Oracle's PeopleSoft Bid - InternetNews.
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DoJ to Block Oracle's PeopleSoft Bid

UPDATE:The Department of Justice has dealt a blow to Oracle's $9.4 billion hostile bid to purchase rival software maker PeopleSoft , saying Thursday that it would hurt competition, stymie innovation and jack up prices in the industry.

Assistant Attorney General R. Hewitt Pate, who heads the DoJ's Antitrust Division, on Thursday said the DoJ would file a civil lawsuit in U.S. District Court in San Francisco to block the proposed purchase.

Attorneys General of Hawaii, Maryland, Massachusetts, Minnesota, New York, North Dakota, and Texas are joining the DoJ's lawsuit.

"We believe this transaction is anticompetitive--pure and simple," said Pate. "Under any traditional merger analysis this deal substantially lessens competition in an important market. Blocking this deal protects competition that benefits major businesses, as well as government agencies that depend on competition to get the best value for taxpayers' dollars."

Pate noted that only Oracle, PeopleSoft and Germany's SAP compete to sell the human resource management and financial management software for large enterprises and that removing one of them would limit choice.

On a conference call with reporters Thursday afternoon, Pate reiterated his press statements, and said customers rely on the software provided by these players to automate their businesses to reduce operating costs.

"We took this action because it's the right thing to do to protect competition in an important market for businesses and government agencies," Pate said.

"We really believe Oracle, PeopleSoft and SAP provide the products people need. And if that market goes from three down to two, you take choice away from people. We think that in this market and under any traditional merger analysis this is an anticompetitive deal.

Pate also said he believed the DoJ has collected enough evidence to be successful to prove its case. While he didn't offer many specifics about his decision-making process, Pate did acknowledge that the decision stems from speaking to an unspecified number of customers who feared that the deal would adversely affect their businesses.

The decision is the next crucial event in the battle for control of PeopleSoft, which Oracle has been trying to acquire since June of last year.

Industry reaction

Oracle blasted the deal DoJ's announcement, saying the department followed an aggressive lobbying campaign by PeopleSoft management and vowed to "vigorously challenge" the Department of Justice's decision.

Because such litigation will extend beyond PeopleSoft's annual shareholders' meeting on March 25, Oracle said it would withdraw its recommended slate of directors and will not solicit proxies at the meeting. It also extended its latest tender offer of $26 per share for PeopleSoft, an 18.8 percent premium, to June 25, 2004. The previous deadline was March 12.

PeopleSoft CEO Craig Conway said in a statement that the decision confirms the PeopleSoft board of directors' stance that the deal undervalued the Pleasonton, Calif., company and was anticompetitive.

"Now that the antitrust day of reckoning has arrived and the Justice Department has announced its decision to sue to block the transaction, it is time for Oracle to abandon its efforts to acquire the Company," Conway said. The board must still face shareholders at a meeting March 25 to decide on new members.

Robert Christopher, an attorney specializing in litigation on antitrust for technology companies at Coudert Brothers in Palo, Alto, Calif., expressed relief -- but not surprise -- at the DoJ's decision.

"All of the papers and experts have been predicting this for several weeks," Christopher told internetnews.com. But I think this is good for innovation and competition because in the long term Oracle will not swallow up a somewhat different mixture of products that PeopleSoft brings to the marketplace."

Christopher also said it is likely the European Commission, which has extended its decisions due date to May after requesting more information from Oracle, will follow the DoJ's move.

Deal far from dead, analyst say

Mike Dominy, analyst of the Business Applications & Commerce practice at The Yankee Group, said the industry will be watching to see whether Oracle has a back-up proposal waiting in the wings.

For example, he said the DoJ might be willing to accept the deal if Oracle agreed to acquire PeopleSoft, but then divest itself of J.D. Edwards, which PeopleSoft acquire last July for $1.75 billion. That might soften the DoJ's position that Oracle's proposal is anticompetitive, Dominy told internetnews.com.

Ken Marlin, a mergers and acquisitions investment banker with specialist advisory firm Marlin & Associates, called the DoJ's decision an "unusual and significant" call that could cost Oracle millions of dollars in litigation fees that could only be resolved after many years, if it decides to fight. And it could only then be facing a much-changed industry sector than today's.

On the other hand, he continued, a lot of interested parties might urge Oracle to do just that, "if for no other reason than to beat back the Justice department on what constitutes anticompetitive behavior" and to establish updated case law on antitrust legislation.

The DoJ's announcement came just before the close of regular trading Thursday. PeopleSoft closed down 35 cents at $21.78. Oracle's share's closed up 9 cents at $13.28.

Erin Joyce contributed to this report