Oracle to Fight DOJ Decision on PeopleSoft Merger

The government has the burden to prove the merger is anticompetitive, but "one should expect that the government is pretty confident that they've got the evidence to support their claim," Friedman added. "I am confident that the government had substantial evidence -- primarily from customers who feared that an Oracle acquisition of PeopleSoft would limit their choices and result in higher prices."

Investors, meanwhile, prefer Oracle throw in the towel rather than be distracted by a protracted legal battle. "My preference would be ... that they probably just move ahead and operate their business," said Marty Shagrin, a software analyst with Victory Capital Management in Cleveland, which has small holdings of Oracle and PeopleSoft. "I'm not sure it's time well-spent fighting a case in court trying to acquire a company that doesn't want to be acquired."

FTN Midwest Research analyst Trip Chowdhry said he believes Oracle should and will abandon its bid for PeopleSoft rather than fight the DOJ.

"To win against the DOJ is going to be a very long process, and I don't think Oracle will serve its customers well by proceeding with the bid against the DOJ and getting distracted further," said Chowdhry, who has a buy rating on Oracle and neutral rating on PeopleSoft. Instead, he predicts Oracle will focus on its own applications business and look for other acquisitions in the applications space. (FTN Midwest Research does not have an investment banking business.)

Ellison already has thrown out BEA Systems (BEAS Quote) as one possible acquisition target if the price were right. Other potential acquisitions that would help Oracle move beyond its core, maturing database market could include a business intelligence software maker such as (HYSL Quote) or an industry-specific software maker such as Retek(RETK Quote).