In a stinging setback for Oracle Corp, the Justice Department and seven states on Thursday filed a lawsuit to block Oracle's US$9.4 billion hostile takeover of PeopleSoft Inc.
The Justice Department said the deal would violate federal antitrust laws, reduce competition and lead to higher prices for customers.
"We took this action because it's the right thing to do to protect competition in an important market," said Hewitt Pate, assistant attorney general of antitrust, in a conference call after the decision was announced. The civil lawsuit was filed in US District Court in San Francisco, California, near where both companies maintain their headquarters.
Oracle, based in Redwood Shores, and PeopleSoft, based in Pleasanton, are direct competitors in selling software used by businesses to manage their payroll, human resources and accounting operations. The two companies, along with the market leader, SAP of Germany, are the only ones that sell the highly integrated, complex programs used by the largest enterprises, Pate said.
A merger of Oracle and PeopleSoft, the Justice Department said, would reduce the market to only two competitors, leading to higher prices and fewer choices.
The Justice Department was joined in the suit by the attorneys general of Hawaii, Maryland, Massachusetts, Minnesota, New York, North Dakota and Texas, all of whom contend the merger would damage competition in their states. State governments are extremely large customers of both Oracle and PeopleSoft, with investments in both product lines amounting to hundreds of millions of dollars in some cases. A consolidation of the two vendors was seen as potentially threatening software investments that had been made in PeopleSoft products.
Eliot Spitzer, New York's attorney general, said in a statement that the state joined the lawsuit because "Without PeopleSoft in the market, Oracle would lose the incentive to offer lower prices, better services and more innovative products."
Lawrence Ellison, chief executive of Oracle, has consistently argued that the market for business enterprise software is highly competitive, with hundreds of companies vying in that market. He has repeatedly pointed to the prospect of Microsoft entering the market as evidence that there is plenty of room for competitors. Pate, however, said the agency's lawyers did not consider the possibility of future competitors in making their decision.
Oracle said it planned to "vigorously" challenge the Justice Department's lawsuit, and that the agency's claim that there are only three vendors competing in the market is inaccurate.
"We believe that the government's case is without basis in fact or in law, and we look forward to proving this in court," said Jim Finn, an Oracle spokesman.
The company said on Thursday it was ending its proxy fight to control the PeopleSoft board by withdrawing its slate of nominees to the board because the litigation would extend beyond the PeopleSoft stockholders' meeting on March 25. It also extended its US$26 a share tender offer for PeopleSoft stock to June 25.
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