Takeover-Hungry Oracle Weighed Bids For Eight Other Companies Besides PeopleSoft

The Justice Department provided some insights into Oracle's thinking late Monday with the release of previously confidential documents that listed the company's potential prey as of April 2003. The government submitted the documents as evidence in an antitrust trial seeking to block Oracle's hostile bid for PeopleSoft.

Oracle's shopping list consisted of five business applications software makers and four other companies involved in other industry niches. The 48-page analysis included the pros and cons of pursuing a bid for each of the targeted companies.

Besides PeopleSoft, the other business applications software makers in Oracle's sights were Lawson Software, Cerner, SunGard SCT and J.D. Edwards, which PeopleSoft bought for $2 billion last summer.

Oracle also considered pursuing bids for BEA Systems, Sybase, Business Objects and Documentum, which EMC ended up buying late last year for $1.8 billion.

In a videotaped deposition shown late Monday, Oracle CEO Larry Ellison also touted another business applications software maker, Siebold Systems, as an appealing target, suggesting it would rank as his third choice behind PeopleSoft and San Jose-based BEA Systems. Ellison made those remarks last month, nearly a year after Oracle began its pursuit of PeopleSoft.

While its PeopleSoft bid remains in legal limbo, Oracle has repeatedly said it's eager to make other deals. Just last week, Oracle chairman Jeff Henley told reporters the company hopes to pull off at least one or two multibillion dollar acquisitions during the next year, even if its PeopleSoft bid collapses. Henley didn't identify potential targets.

The release of the shopping list overshadowed the testimony of California Institute of Technology business economics professor Preston McAfee. The antitrust expert, hired by the Justice Department, estimated that major U.S. companies shopping for sophisticated software to automate their accounting and personnel departments would face price increases of up to 30 percent if Oracle buys PeopleSoft.

After reviewing sales data that documented steep price discounting when Oracle and PeopleSoft face off in head-to-head competition, McAfee used complex economic models to calculate what might happen if the two rivals were no longer bidding against each other.

Under that scenario, McAfee projected average price increases ranging from 5 percent to 30 percent in the market niche that sells financial and human resources management to large U.S. companies.

In his cross-examination, Oracle attorney Daniel Wall denigrated the estimated price increases as biased data that drew upon incomplete market information. Under Wall's questioning, McAfee acknowledged his analysis didn't consider the prices that might be paid by companies that preferred products made by Germany-based SAP, the business applications software leader.

The documents reviewed by McAfee also showed how frequently Redwood Shores-based Oracle and Pleasanton-based PeopleSoft run into each other in the business applications software market.

Oracle vied against PeopleSoft in 236 of the company's 982 sales opportunities, or nearly one out of every four deals, during the fiscal year ending in May 2003. Oracle encountered PeopleSoft in 46 percent of the 131 deals involving sales of more than $500,000--the large-company market that's the focal point of the Justice Department's antitrust concerns.

McAfee told U.S. District Judge Vaughn Walker that the documents provided "compelling" proof that PeopleSoft's market presence forced Oracle to lower its prices to close deals.

In one sales document submitted Monday, an Oracle sales representative reported that the two rivals "spent the entire day in [a] customer's office ... bidding and counterbidding against each other."

The government will present one more key witness, Microsoft executive Douglas Burgum, who is scheduled to testify Wednesday about his company's plans to make business applications that automate a wide range of administrative jobs in corporate America.

Most of the remaining testimony will be devoted to Oracle's attempt to rebut the government's contention that a PeopleSoft takeover would result in higher prices and less product innovation in a market segment catering to the nation's largest companies.

The Justice Department says Oracle, PeopleSoft and SAP are the only software makers with the resources to make the complex financial and personnel products required by corporate giants.

Oracle paints a much more competitive landscape, pointing to up-and-coming companies, such as Lawson, and the looming presence of Microsoft, which acknowledged at the trial's outset that it explored a takeover of SAP last year before calling off the negotiations.

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