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Oracle Bid Heads to Courtroom

Opening statements are set for today in the antitrust trial that may make or break the deal for rival PeopleSoft.

June 07, 2004|From Associated Press

SAN FRANCISCO — After a year of colorful drama, Oracle Corp.'s seesawing takeover bid for rival business software maker PeopleSoft Inc. is moving to federal court, where an antitrust trial may make or break the proposed deal.

Opening statements are set for today. If the court rules that an Oracle takeover would violate antitrust laws, then, barring an Oracle appeal, the drama will end.

To date, Pleasanton, Calif.-based PeopleSoft has spurned four offers. The latest is $7.7 billion, or $21 a share -- a price that might look attractive if Redwood City, Calif.-based Oracle clears the antitrust hurdle that has helped shield PeopleSoft. The offer is 15% to 20% above the recent trading range of PeopleSoft's stock, which has sagged amid concerns about the company's sales outlook. On Friday, the shares fell 8 cents to $17.31 on Nasdaq.

The non-jury trial may be less enthralling than the last year of venomous wrangling between two of the world's three largest makers of business applications software, the computer coding that automates many administrative tasks.

The face-off quickly turned into a Silicon Valley soap opera, complete with a personality clash pitting Oracle's swashbuckling chief executive, Larry Ellison, against his feisty former subordinate, PeopleSoft CEO Craig Conway.

The trial probably will be filled with dry testimony about the market definitions for products so abstruse that U.S. District Judge Vaughn Walker held a pretrial tutorial to get a better understanding of the technology.

Although much of the evidence and arguments will be interesting only to technology aficionados and antitrust wonks, the trial may have spicy moments, with lots of court time for the often-entertaining Ellison, who will appear in a videotaped deposition and in the witness box. Oracle's lawyers plan to spend up to six hours grilling the equally outspoken Conway.

Microsoft Corp., the software giant that has long been a prime target of Ellison's derision, will provide more intrigue.

The question of whether Microsoft is plotting an expansion into business applications software is one of the big sticking points in the case. The government and Oracle plan to call different Microsoft executives -- Douglas Burghum and Cindy Bates -- as the two sides each spend two weeks trying to prove their arguments.

Although the trial is scheduled to end July 2, Walker -- a former antitrust lawyer himself -- isn't expected to issue his decision in the case until August or September. If Walker's decision is appealed, the saga could drag on until next year.

The Justice Department, backed by 10 states, alleges that Oracle shouldn't be allowed to buy PeopleSoft because the combination would cause irreparable damage to large U.S. companies that buy business applications to run their accounting and personnel operations.

Regulators argue that Oracle, PeopleSoft and market leader SAP of Germany are the only software makers competing in this high-end niche. Under the thesis, Oracle's proposed takeover of PeopleSoft would winnow the market into an illegal duopoly -- a dynamic that would drive up prices and lower the quality of software and product support for the country's largest companies.

"When the evidence is in, the likely anti-competitive effects of the proposed acquisition will be readily apparent," government attorneys predicted in a pretrial brief.

Oracle ridicules the concept, contending that the government has created too narrow of a market definition that excludes scores of other business software suppliers. The government's case hinges on "the most confusing, meaningless market definition ever pursued in a merger challenge," Oracle's attorneys argued in their pretrial brief.

Both arguments will rely heavily on evidence provided by the other side. Justice Department lawyers also say Oracle's internal sales documents will show that PeopleSoft frequently exerts competitive pressure that forces Oracle to lower its prices.

Oracle thinks the government's actions will help prove the company's contention that big companies and other large enterprises will continue to have plenty of other business applications software options, even if PeopleSoft is acquired.

One probable piece of evidence will be a recent $24-million contract the Justice Department signed to use financial management software made by American Management Systems Inc. Oracle may also point out that Michigan and Massachusetts, two of the states that joined the Justice Department in the case, use business applications software made by Lawson Software Inc. and American Management Systems, respectively.

The trial is expected to add millions of dollars more to the already hefty bill that Oracle has run up pursuing PeopleSoft. Through February, Oracle had spent $48.4 million in pursuit of its prey.

The chase hasn't been fruitful for Oracle's shareholders. Although its sales and profit have been improving, Oracle's stock has declined 18% since its pursuit of PeopleSoft began a year ago. On Friday, the shares rose 7 cents to $11.04 on Nasdaq.

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