Stepping into a virtual lion's den, Oracle Corp took the case for its US$9.4 billion hostile takeover of PeopleSoft directly to a group of PeopleSoft corporate customers on Monday, after the Justice Department's decision last week to sue Oracle to block the deal.
Charles Phillips, co-president of Oracle, told attendees at the customer conference that the Justice Department would have difficulty proving its claim that the market for business software programs that automate human resources and financial management processes is not highly competitive. The market is dominated by SAP of Germany, with PeopleSoft and Oracle holding the second and third positions.
The Justice Department contends that a merger of Oracle and PeopleSoft would reduce the market to two competitors, leading to higher prices and fewer choices.
"It is the government's burden to define the set of customers for whom Oracle, PeopleSoft and SAP are the only options and who are harmed by this," Phillips told attendees of Quest West in San Diego, a user group conference that attracted about 200 representatives from medium-size companies that use products from J.D. Edwards, the business software competitor that PeopleSoft acquired last August. "For a variety of reasons, we don't think that's possible."
Phillips said that the business enterprise software market is changing all the time and that the barriers to entry are actually quite low.
"While large public companies get the attention, people in the industry, people in this room, know there are many other alternatives," he said.
Further, he said, Microsoft has already invested US$2 billion in acquisitions in the same market.
"We have some big competitors and to compete we need the economies of scale," he said.
Quest, with about 15,000 members worldwide, had invited executives from both Oracle and PeopleSoft to speak at the conference in the hopes of understanding how Oracle's proposed takeover of PeopleSoft might affect customers. Oracle agreed last month to send an executive to the meeting, but in January PeopleSoft declined to attend, and instead broke official ties with Quest because the group refused to adhere to PeopleSoft's user group requirements, according to Quest and PeopleSoft.
The president of Quest, Barbara Schmit, said the organization is opposed to Oracle's takeover of PeopleSoft, but invited Phillips to talk about Oracle's plans in the event that the merger succeeds. Oracle said last week that it would fight the Justice Department's lawsuit, and hired Daniel Wall, a lawyer with Latham & Watkins, to defend the company. Wall said he expected the trial to start in June and last three to four weeks.
US District Court Judge Vaughn Walker has been assigned to the case. The trial will be held in San Francisco. Wall said that lawyers will meet with Walker sometime this week to determine a specific timetable for the case.
For Oracle, the goal is to define the market as broadly as possible, antitrust lawyers said. To make that point, Oracle will have to find corporate customers who will testify that there are more than three vendors selling business enterprise software from which they can choose. One thing is certain, the legal case will be costly for Oracle.
"The next three to four months are going to be expensive, with a lot of attorney time spent," said Douglas Broder, an antitrust lawyer at Nixon Peabody in New York. "It could easily run into the seven figures."
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