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Sat, Sep 11, 2004 - Page 12 News List

Court approves Oracle's PeopleSoft bid

COMPETITION Analysts said the ruling could open the way for more software industry mergers by making big firms feel less constrained by the prospect of antitrust challenges


A US federal judge ruled on Thursday that Oracle, the US' second-largest software company, could proceed with its hostile bid for PeopleSoft, handing the Justice Department a rare defeat in a legal challenge to a corporate merger.

The Justice Department sought to block Oracle's US$7.7 billion offer for PeopleSoft on the grounds that combining the two companies would reduce competition in the market for software that large corporations use to manage their finances and employee records.

But Judge Vaughn Walker of the US District Court in San Francisco rejected the government's definition of the market as too narrow, noting that the software business is particularly dynamic, with a host of current and emerging competitors in that area, including Microsoft.

Antitrust experts and industry analysts said the court decision, which can be appealed, could open the way for more mergers in the software industry if big companies like Oracle, IBM and Microsoft feel less constrained by the prospect of antitrust challenges. The European Commission is continuing to investigate the proposed merger.

"Oracle may be the biggest beneficiary of this ruling, but it makes acquisitions to consolidate the industry easier for others as well," said Charles Di Bona, a software analyst for Sanford Bernstein & Co.

Microsoft, the world's biggest software company, played a prominent role in the trial even though it was not a party to the case. Fear of Microsoft's market power was part of Oracle's motivation in seeking a merger.

In the six-week trial this summer, Oracle insisted that buying PeopleSoft was essential to its strategy of expanding to cope with increasing competition from Microsoft.

On the eve of the trial, Microsoft was forced to disclose that it had talked with SAP, the big German business software maker, about acquiring that company. And during the trial, witnesses for Oracle pointed repeatedly to Microsoft's ambitions and aggressive spending in the business software market.

Asked to comment on Thursday, Andrew Gavil, a law professor at Howard University, said, "The entry of another formidable competitor makes it harder to argue that it is a stable market where entry is difficult and the acquisition would really hurt competition."

The Justice Department, however, argued that the merger of Oracle, the second-largest company in the business software arena, and PeopleSoft, the third-largest, would create a "duopoly" that would harm consumers.

"The merger would end fierce head-to-head competition that has brought customers lower prices and better products," said Claude Scott, the government's lead lawyer, in closing arguments on July 20.

But Walker did not find that argument sufficiently convincing. "Plaintiffs have not shown by a preponderance of the evidence that the merger of Oracle and PeopleSoft is likely to substantially lessen competition in a relevant product and geographic market," he wrote in a 164-page ruling.

Walker found that the market for business software was a global one, and not limited to the US. And he also noted that several other companies, including Microsoft and Lawson Software, were competing in the field.

PeopleSoft executives would not comment on the decision directly, saying only that its directors would review the implications of the ruling. The news caused PeopleSoft's shares to jump 15 percent to US$20.57 in after-hours trading, after closing at US$17.95.

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