Oracle to Fight DOJ Decision on PeopleSoft Merger

Updated from 10:10 a.m. EST

Dealing what could be a fatal blow to the hostile takeover bid, the Department of Justice and seven states will file suit to block Oracle's(ORCL) bold offer for rival PeopleSoft (PSFT).

Despite lobbying by Oracle, Assistant Attorney General R. Hewitt Pate has decided to stand by his staff's recommendation to block the second-largest software maker's $9.4 billion bid for PeopleSoft, the department announced Thursday. Attorneys general from Hawaii, Maryland, Massachusetts, Minnesota, New York, North Dakota and Texas are joining the lawsuit, which will be filed in U.S. District Court in San Francisco on Thursday.

"We believe this transaction is anticompetitive -- pure and simple," Pate said in a press release.

"If the merger were allowed to proceed, it would eliminate competition between two of the nation's leading providers of human resource and financial management enterprise software applications, resulting in higher prices, less innovation and fewer choices for the businesses, government agencies, and other organizations that depend on this type of software," the department said in the release.

Friday morning, shares of PeopleSoft were recently down 67 cents, or 3.1%, to $21.11; Merrill Lynch downgraded its recommendation to sell from neutral in the wake of the DOJ's decision. Oracle was recently down 9 cents, or 0.7%, to $13.19.

In a prepared statement Thursday, PeopleSoft CEO Craig Conway called on Oracle to give up its fight, noting that his company has consistently said the acquisition would be prohibited under antitrust rules.

Shortly after Oracle launched the hostile takeover last June, Ellison said the deal would be dead if antitrust regulators opposed it. But more recently he said he would fight for the deal in court and has reportedly been talking to Oracle's board about winning its approval to wage that battle.

Late Thursday, Oracle announced the company will indeed fight the DOJ suit.

"We believe that the government's case is without basis in fact or in law, and we look forward to proving this in court," Jim Finn, an Oracle spokesperson, said in a statement.