Oracle vs. DOJ: Analysts, Lawyers See Different Trial

As the Justice Department's antitrust trial against Oracle(ORCL Quote) crosses its midpoint, some sell-side analysts believe Oracle has emerged in an unexpectedly strong position. But legal experts underscore the fact that the trial's outcome is hardly clear cut.

This week, the Department of Justice called its last witness in its suit to block Oracle's $7.7 billion hostile takeover of PeopleSoft(PSFT Quote), and Oracle began arguing its side of the case. Now in its third week, the antitrust trial under way in federal court in San Francisco is expected to end late next week. A decision by Judge Vaughn Walker is expected in August or September.

"The DOJ's case was surprisingly weak," Pacific Crest analyst Brendan Barnicle declared in a note Tuesday. "Oracle fared extremely well during the DOJ portion, and Oracle is in a good position to build on its arguments with witness testimony over the next two weeks."

Barnicle noted how even the DOJ's own witnesses suggested that the players in the enterprise applications market extend beyond just SAP(SAP Quote), Oracle and PeopleSoft.

The definition of the market is a crucial issue in the case. The DOJ maintains the market in question is high-end financial and human relations software serving large companies, and that the three companies are the only major players. Consequently, Oracle acquiring PeopleSoft would reduce the market to a duopoly and reduce competition, hurting customers, the government argues.

Oracle has countered the government's definition is arbitrary, claiming the software market is broader and consequently includes more players.

In the first phase of the trial, Barnicle noted, PeopleSoft executives testifying on behalf of the DOJ acknowledged in cross-examination that PeopleSoft competed against and sometimes lost large enterprise deals to other players such as Lawson Software (LWSN Quote).

In addition, Richard Knowles, vice president of operations for SAP America, testified Wednesday that "the only thing we anticipate is the same level of competition we face today, if not greater," even if Oracle were to ultimately acquire PeopleSoft.

"It is increasingly likely that Oracle will prevail in this trial," Barnicle concluded, an outcome he believes could put some pressure on Oracle shares. Still, the analyst maintains an outperform rating on Oracle with a 12-month price target of $18. (His firm has not done any investment banking with Oracle.)