Oracle, DOJ Mull Their Next Moves

Updated from 9:51 a.m. EDT

Oracle's(ORCL Quote) court victory Thursday over the federal government's attempt to prevent its hostile takeover of PeopleSoft(PSFT Quote) has Wall Street assessing how much of the battle remains.

Early returns on the stunning Justice Department defeat were bullish, with many analysts expecting a sweetened bid. PeopleSoft predictably rallied toward the $7.7 billion offer's $21-a-share takeout price. Oracle also rose, as many Wall Street analysts argued that the deal as constituted would be an immediate boon to its earnings.

In recent trading, PeopleSoft was up $1.63, or 9%, to $19.58, while Oracle jumped 50 cents, or 5%, to $10.43.

Notably, a handful of second-tier software companies, including Business Objects(BOBJ Quote), Borland(BORL Quote) and BEA Systems(BEAS Quote), were also higher on collateral takeover speculation.

Goldman Sachs analyst Rick Sherlund said that at the very least, the merger would add "a few cents per share" to Oracle's net income. But If Oracle follows through on its intention to cut out about $1 billion of PeopleSoft's cost structure and "basically milk the maintenance revenue stream, we estimate this would be more significantly additive to earnings at the current $21 offer price," Sherlund said.

Tad Piper of Piper Jaffray said: "The acquisition of PeopleSoft could potentially drop close to $780 million in calendar 2005 pro forma net income to Oracle's bottom line. With 5.22 billion shares outstanding, this would be equivalent to 14 cents in calendar 2005 EPS for Oracle, or potentially 75 cents a share vs. current estimates of 61 cents a share."

After a month-long trial that ended in late June, U.S. District Court Judge Vaughn Walker on Thursday evening rejected Justice Department arguments that Oracle's hostile merger offer would unfairly damage competition in the market for enterprise software.

His 164-page decision found that the government had not proved that a high-end enterprise software market "exists as a separate and distinct line of commerce." Walker also said the government never proved that the relevant market excludes Europe, where German software giant SAP(SAP Quote) is dominant.