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Ellison Prediction Haunts Bid for Rival

Antitrust lawyers play a tape of the Oracle CEO saying big firms would nudge out smaller ones.

June 22, 2004|Joseph Menn | Times Staff Writer

SAN FRANCISCO — Government antitrust lawyers turned one of Larry Ellison's best sales pitches against him Monday, showing a federal judge a videotaped prediction by the Oracle Corp. chief executive that only the largest software companies offering a wide variety of products would survive in the long run.

"The suite suppliers are going to win and the 'best of breed' companies are going to lose," Ellison said in a deposition played in federal court here, where the Justice Department is suing to block Oracle's hostile bid to buy rival PeopleSoft Inc.

"Best of breed" is a term that refers to such specialty firms as Siebel Systems Inc., a maker of programs for tracking interactions with customers. In answering questions from government trial attorney Claude Scott, Ellison identified companies that provide more comprehensive suites as including Oracle, PeopleSoft and market leader SAP of Germany.

The government is trying to block Oracle's tender offer for PeopleSoft on the grounds that if it succeeds it will leave only two companies -- Oracle and SAP -- able to supply human resources and financial software to the largest companies.

The government will wrap up its case Wednesday with testimony from a Microsoft Corp. executive, leaving two weeks for Oracle to respond.

Oracle has argued that some customers are satisfied with software from specialty firms and that other vendors that sell mainly to mid-sized companies also compete for the largest businesses.

On Monday, Ellison's testimony, recorded in January, partially undercut that defense. He said it didn't make economic sense to buy software from multiple suppliers and keep those programs cobbled together as they evolved.

Ellison and Oracle Chairman Jeff Henley, in videotaped testimony given earlier in the day, also noted a range of possible acquisition targets they had been or were still considering.

In addition to PeopleSoft, they described Siebel, BEA Systems Inc., Lawson Software Inc. and J.D. Edwards & Co. as attractive. PeopleSoft's purchase of J.D. Edwards last year triggered Oracle's play for PeopleSoft.

In cross-examining previous witnesses, Oracle's attorneys have repeatedly called attention to Lawson as a fierce competitor for major accounts. But in Henley's videotaped deposition, government lawyers produced a slide Henley had used in a 2003 board presentation on possible takeovers. The slide described Lawson as one of Oracle's potential "mid-market acquisitions."

Earlier, Caltech economist Preston McAfee testified for the government that he believed an Oracle-PeopleSoft merger would drive up prices 10% to 28%.

McAfee said he relied on requests for discounts from Oracle salespeople who were competing against PeopleSoft. On cross-examination, he acknowledged that he did not weigh other factors the salespeople cited, such as the belief that Oracle could win more software or consulting deals by discounting the key products.

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