Court Quashes Government's Case Against Oracle

U.S. District Court Judge Vaughn Walker, who spent four weeks last June presiding over Oracle's case against the Department of Justice, ruled that Oracle can pick up with its pursuit of enterprise applications vendor.

In his ruling, Judge Walker said the government had not proved its case that "a post-merger Oracle would have sufficient market shares in the product and geographic markets..." or that "a post-merger Oracle and SAP would likely engage in coordinated interaction" in pricing. In fact, the government lost on nearly every count it had put before the court in its efforts to block Oracle from taking its bid before PeopleSoft's shareholders.

Roger Harris, general manager of PeopleSoft partner MSS Technologies, of Denver, cautions that this ruling hardly represents the end to Oracle's work. "This is one hurdle but that doesn't mean it will happen. It just means it could happen. There are still 10 states filed to stop [the attempt]. There's still PeopleSoft's lawsuit against Oracle to stop unfair business practices. And Oracle still has to convince PeopleSoft's stock holders. We are not ready to fold up the tent yet."

Joe Lindsay, CTO of eBuilt, Costa Mesa, Calif., said he had expected Oracle to lose its case against the government. eBuilt, a systems integrator, includes Oracle as one if its partners.

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"I'm surprised the ruling went that way," he said. "I think it stifles competition and reduces options, and that's never a good thing."

Minutes after the ruling, R. Hewitt Pate, Assistant Attorney General in charge of the Department's Antitrust Division, issued a statement expressing deep disappointment on how the case has turned: "We believe the facts and evidence in this case support our position that Oracle's proposed acquisition of PeopleSoft would result in a substantial lessening of competition in the markets for high function Human Resources Management and Financial Management Systems software. The Department is considering its options."

One such option, of course, is to appeal the ruling. Judge Walker stayed his order for 10 days to give the government time for such an action.

At least one industry observer viewed the ruling as inevitable.

"The failure to prove that an Oracle acquisition of Peoplesoft is anticompetitive reflects the reality of the market -- despite consolidation there remains considerable competition and continuing innovation in enterprise systems," said John Parkinson, chief technologist, North American Region, Capgemini. "Now we can see if the deal makes sense to customers and investors."

For its part, Oracle lost no time hailing the decision. The company issued a letter to PeopleSoft's board asking to meet. Adding weight to that "request," the Redwood Shores, Calif., database maker prominently displayed on its Web site a statement from Chairman Jeffrey O. Henley, saying, "This decision puts the onus squarely on the board of PeopleSoft to meet with us and to redeem their poison pill so that the shareholders can accept our offer."

In its efforts to stave of Oracle's hostile $7.7 billion bid, PeopleSoft's board had created a so-called poison pill that would offer customers refunds of up to five times their license fees if Oracle acquires the Pleasanton, Calif., company and implements major product changes. PeopleSoft's Customer Assurance Program could create up to $2 billion in potential liability.

During its trial, Oracle had steadfastly maintained that the enterprise applications market would soon be under attack by Microsoft. To counter that eventual onslaught from the world's largest software maker, Oracle CEO Larry Ellison said Oracle needed to beef up its own applications. And for that, Ellison testified, Oracle needs more customers.

"To make products better, we have to spend more on engineering, and the only way to do that while lowering our price was to have a larger installed base," said Ellison, alluding to the fact that R&D spending is typically a percentage of revenue. "We chose the acquisition direction as the only way to grow our business so we could increase our investment in engineering."

Some solution providers question Ellison's assumptions. "The new products coming out of PeopleSoft are pretty strong, and people are not just going to port over to Oracle," said Paula Milano, president of PeopleSoft solution provider Axion Solutions, Irvine, Calif. "And if customers do have to make that decision to move to something new, they will look also at Microsoft and SAP. It's naive to think Oracle can just milk the installed base for the maintenance revenue."

This might jump-start Microsoft's efforts to penetrate the enterprise applications market, one solution provider said.

"Oracle and PeopleSoft [together would] mean that Oracle has a large enterprise suite," said Ted Dinsmore, president of Conchango, a Microsoft Gold Certified Partner in New York. "Microsoft doesn't. Microsoft needs something in the enterprise level. Navision and Axapta are in medium-size businesses, but they need enterprise applications."

At the company's worldwide partner conference last July, Microsoft CEO Steve Ballmer acknowledged that the software giant engaged in merger talks with German application giant SAP -- PeopleSoft's top competitor -- but those talks broke off for a variety of reasons.

ELIZABETH MONTALBANO and PAULA ROONEY contributed to this report