It's Official: Government To Fight Oracle Bid For PeopleSoft

The Justice Department is filing a civil antitrust case to block the move in the U.S. District Court in San Francisco. In a statement released Thursday afternoon, it claims a merger would raise prices and dampen innovation.

Both companies had said they expected word from the government by early March, and it was widely reported that the department's antitrust lawyers had recommended against approving the hostile bid.

The federal suit will be backed by the attorneys general of Hawaii, Maryland, Massachusetts, Minnesota, New York, North Dakota and Texas, according to the statement.

If Oracle's bid were to succeed, "it would eliminate competition between two of the nation's leading providers of human resource and financial management enterprise software applications, resulting in higher prices, less innovation and fewer choices" for business and government buyers, according to the Justice Department.

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Oracle launched its surprise hostile bid last June. The initial offer was $5.1 billion or $16 per share. The current offer stands at about $9.4 billion, or $26 a share. PeopleSoft has maintained that the offer was unwanted and would result in less value for PeopleSoft shareholders and customers.

"We believe, and have said from the beginning, that Oracle's tender both under-values the company and faces antitrust roadblocks. The Department of Justice confirmed that today," said PeopleSoft spokesman Steve Swasey. "We really think it's time for Oracle to abandon its efforts to acquire PeopleSoft. The company should just devote its efforts to competing in the marketplace and providing better products and services to customers."

Late Thursday, Oracle issued a statement that its board of directors had voted to "vigorously challenge" the Justice Department's lawsuit. And, since this legal action will last beyond the PeopleSoft Stockholders' meeting on March 25, 2004, Oracle is withdrawing the slate of directors it had proposed, according to the statement.

Today's news comes just a day after Oracle CEO Larry Ellison, and his bid for PeopleSoft, was spotlighted on national TV in a "60 Minutes II" segment.

This story has been updated with PeopleSoft and Oracle statements.