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Oracle Sweetens Bid for Reluctant PeopleSoft

The $6.3-billion price is seen as addressing doubts about the sincerity of earlier offer. Suit is filed to prevent J.D. Edwards deal.

June 19, 2003|Alex Pham and Joseph Menn | Times Staff Writers

Oracle Corp. upped the ante in its hostile bid for PeopleSoft Inc. on Wednesday, offering $6.3 billion for the rival software company and suing to prevent it from merging with J.D. Edwards & Co.

PeopleSoft said its board would review Oracle's sweetened bid, which at $19.50 a share is 22% higher than the $16 a share offered earlier this month.

The board last week rejected Oracle's initial offer of $5.1 billion, opting instead to forge ahead with a planned merger with J.D. Edwards.

The higher bid addressed analysts' doubts that the offer by Redwood City, Calif.-based Oracle wasn't sincere but intended to spoil the J.D. Edwards deal.

"It's definitely a strong statement that Oracle's serious," said David Hilal, managing director of Friedman, Billings & Ramsey Co., an investment bank in Arlington, Va. "But they'll have to come back one more time with a higher bid to get the ball over the goal line."

Oracle's suit, filed in Delaware Chancery Court against PeopleSoft, its board and J.D. Edwards, seeks to nullify PeopleSoft's so-called poison pill, an anti-takeover strategy in which more shares are issued to investors to try to make a hostile takeover too expensive.

Oracle also sought an injunction to stop PeopleSoft and J.D. Edwards "from interfering with the sale of control of a publicly held company."

Oracle shares rose 72 cents to $13.42. PeopleSoft advanced 78 cents to $17.93, while J.D. Edwards increased 21 cents to $14.10. All trade on Nasdaq.

On Wednesday, Oracle encountered a new obstacle when Connecticut Atty. Gen. Richard Blumenthal filed a federal antitrust lawsuit to block an Oracle acquisition of PeopleSoft.

"The effects of this takeover would be disastrous for consumers," Blumenthal said. He said the combination would stifle competition in the $23-billion global market for the corporate software that manages everything from payroll to supplies.

Oracle insisted that the company's plan would preserve competition by forming a stronger rival to market leader SAP of Germany.

"The market is going to require a stronger competitor to SAP," Oracle spokeswoman Jennifer Glass said. "We don't think PeopleSoft is strong enough to stand on its own."

If anything, the high-profile slugfest has benefited SAP, which said Wednesday that it has received inquiries in the last two weeks from two dozen Oracle, PeopleSoft and J.D. Edwards customers contemplating switching to SAP.

Oracle, which also sells database software, is the second-largest maker of business software. PeopleSoft, of Pleasanton, Calif., and Denver-based J.D. Edwards rank third and fourth, respectively.

For regulators and the courts, a major issue in determining whether a merger would result in less competition is how the market is defined.

According to technology research firm IDC, the market for enterprise applications -- business programs that perform specific tasks such as for inventory and human resources -- is $65 billion annually.

SAP gets about $4.5 billion in revenue from that market, and Oracle and PeopleSoft get even less, said IDC's Albert Pang, so the market defined that way would be too fragmented for a union between other producers to alarm trustbusters.

In the more narrowly defined field of enterprise resource planning -- large suites of software for running much of a business' operations -- SAP has about 18.1% of the $23-billion market, with Oracle and PeopleSoft tied for second place with 5.4% each, Pang said.

And regulators typically don't want a market dominated by three players to shrink, even if the weaker two argue that by combining they would pose a stronger challenge to the market leader.

"The so-called strong second argument has been rejected" by the Federal Trade Commission and by the federal court of appeals in Washington, noted Tom Campbell, dean of the UC Berkeley Haas School of Business and an antitrust attorney. Regulators typically take into account only the degree of market share concentration.

Oracle has several things going for it in an antitrust case, said former FTC attorney Keith Shugarman, now with law firm Goodwin Procter in Washington. One is the increased concentration that has been tolerated in various industries in the past decade, he said.

Another is Microsoft Corp.'s increasing interest in the business-software sector, as shown by its recent introduction of customer-relationship software and its purchase of two business-software firms.

"Even if the market is found to be highly concentrated, companies can point to other factors," Shugarman said. "They can say there may only be two players currently on the field, but there is an 800-pound gorilla on the sidelines lacing up his cleats -- in this case, Microsoft."


Bloomberg News was used in compiling this report.

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