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Wed, Jun 23, 2004 - Page 12 News List

Oracle, PeopleSoft deal could hit big companies hard


Major US companies shopping for sophisticated software to automate their accounting and personnel departments will face price increases of up to 30 percent if Oracle Corp buys rival PeopleSoft Inc, an antitrust expert testified.

California Institute of Technology business economics professor Preston McAfee presented his cost analysis on Monday as a witness for the US Department of Justice, which hired him as part of its effort to block Oracle's US$7.7 billion bid for PeopleSoft.

The antitrust trial hit its midway point on Monday as the government wrapped up the bulk of its case.

Oracle will have until July 2 to counter the government's antitrust allegations, continuing its year-old quest to buy PeopleSoft.

After reviewing sales data that documented steep price dis-counting 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 US firms.

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 anal-ysis 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 Oracle and 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 last year.

Oracle encountered People-Soft in 46 percent of the 131 deals involving sales of more than US$500,000 -- the large-company market that's the focal point of the Justice Department's antitrust concerns.

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

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

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.

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