DOJ Against Oracle's Takeover Bid

Business software maker Oracle Corp. lost an important round when the Justice Department recommended blocking its proposed $9.4 billion takeover of rival PeopleSoft Inc., but the fierce fight still isn't over.

Just how badly Oracle has been hurt by Tuesday's recommendation will hinge on how much clout the advice carries with Assistant Attorney General R. Hewitt Pate, the head of the Justice Department's antitrust department. He will make the final decision, due by March 2, on whether there's ample reason to stand in the way of Oracle's $26-per-share bid for PeopleSoft.

Until Pate decides, Pleasanton, Calif.-based PeopleSoft appears to have regained the upper hand it its eight-month slugfest with Oracle.

The momentum shift comes less than a week after Redwood Shores, Calif.-based Oracle stepped up the pressure on PeopleSoft by raising its all-cash bid by 33 percent in a move many analysts predicted would seal the deal.

Yet PeopleSoft's stock price has continued to trade well below the higher bid, reflecting investor pessimism about Oracle's prospects for gaining antitrust approval. PeopleSoft's board dampened the takeover hopes even further Monday by calling the new bid inadequate.

PeopleSoft acquired Denver-based J.D. Edwards & Co. in August for $2 billion.

For his part, PeopleSoft CEO Craig Conway has never yielded in his staunch resistance to Oracle, predicting antitrust problems would prove to be his company's knockout punch.

If that turns to be the case, it would be an ironic setback for Conway's nemesis, Oracle CEO Larry Ellison. The colorful billionaire helped spearhead Silicon Valley's fierce attacks on Microsoft Corp. as the federal government pursued an antitrust case against the world's largest software maker.

Now the grand plans of Ellison and his company - the second largest software maker behind Microsoft - are in danger of being undone by antitrust regulators.

Oracle remains confident it will prevail, predicting Pate will reject his subordinates' advice and clear the path for the company to make its case directly to PeopleSoft shareholders at a pivotal meeting scheduled March 25.

"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," said Oracle attorney James Rill, who headed the Justice Department's antitrust division during the administration of President George H.W. Bush.

Rill said he overruled his staff several times during his three-year stint overseeing the antitrust department.

The recommendation nevertheless represents a significant victory for PeopleSoft, which has cited antitrust concerns as one of its primary reasons for spurning Oracle's unsolicited advances.

Conway, a former Oracle executive, contended the proposed takeover would hurt competition in the $20 billion market for business applications software - the computer coding that automates a wide range of administrative jobs.

Oracle had argued the deal would create a much stronger company better equipped to compete with the market leader, Germany-based SAP, and Microsoft as it offers more business applications products.

A team of Justice Department lawyers conducted a lengthy review of the deal, taking sworn depositions from customers and key executives, including Larry Ellison.

Ellison, whom Conway has likened to Genghis Kahn, has said he feels so strongly about the merits of the takeover that he may lobby Oracle's board fight the Justice Department in court if Pate decides to file an injunction.

By Michael Liedtke