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Regulators Draw Strong Criticism From Oracle

In its response to a suit opposing its PeopleSoft bid, the company says the Justice Department misrepresents market for business software.

March 06, 2004|From Bloomberg News

Oracle Corp. accused U.S. antitrust enforcers of "gerrymandering the market" for business software to try to block the company's $9.4-billion hostile takeover of PeopleSoft Inc.

In its response to the government's antitrust lawsuit challenging the proposed merger, Oracle said the Justice Department was trying to rig the case in much the same way state lawmakers draw legislative districts to ensure electoral victories for a particular political party.

At issue in the case is whether SAP, Oracle and PeopleSoft -- the three largest makers of software for handling such tasks as payroll, accounting and inventory management -- are the only companies that compete for the biggest customers.

Oracle argued that "numerous other software vendors" provide large companies with the same software.

The government's "market definitions are a means of gerrymandering the market around SAP, PeopleSoft and Oracle" and "lack any factual or legal basis," Oracle's lawyers said in court papers filed in San Francisco.

The Justice Department's lawsuit, filed last week, charges that an Oracle-PeopleSoft combination would reduce from three to two the number of competitors that provide "high-function" payroll and accounting software to large customers.

R. Hewitt Pate, the agency's antitrust chief, said a "great number" of large corporations "with names that are very familiar" provided evidence to support the case.

Oracle's response, which outlined the defense it would make if the case went to trial, says there is no such thing as "high-function" payroll and accounting software.

"The relevant products do not have higher functional capacities the way, for example, a dump truck has a higher load-carrying capacity than a pickup truck," its lawyers said.

The software Oracle sells to the world's 50 biggest companies "is the same product" it provides to mid-size businesses, the company said.

In its complaint, the government quoted a 2002 statement by Charles Phillips, then a securities analyst for Morgan Stanley, to buttress its definition of the market.

The "back-office applications market for global companies is dominated by an oligopoly comprised of SAP, PeopleSoft and Oracle," Phillips said at the time. He is now Oracle's co-president.

Oracle has said it would seek a trial by July. U.S. District Judge Vaughn R. Walker in San Francisco, who was assigned the case, scheduled a hearing for Wednesday to discuss procedural issues.

Shares of Redwood City, Calif.-based Oracle dropped 29 cents to $12.71. Pleasanton, Calif.-based PeopleSoft's shares dropped 33 cents to $20.30. Both companies are listed on Nasdaq.

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