DOJ Blocks PeopleSoft-Oracle Merger
Updated from 2:55 p.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) - Get Report
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 bid for PeopleSoft, the department announced Thursday. Attorneys general from Hawaii, Maryland, Massachusetts, Minnesota, New York, North Dakota and Texas are joining the lawsuit.
"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.
Shares of PeopleSoft were recently down 46 cents, or 2.1%, to $21.59, while Oracle edged up 10 cents, or 0.8%, to $13.30.
Whether Oracle CEO Larry Ellison will abandon the deal or fight the Justice Department in court remains unclear. 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.
In a presentation to investors filed with the
Securities and Exchange Commission
this week, Oracle said it believes "it has a very strong case and will ultimately prevail. Efficiencies created by the merger far outweigh any purported anticompetitive harm."
But after several months of review, Justice Department regulators disagreed. The DOJ concluded that Oracle, PeopleSoft and German behemoth
SAP
(SAP) - Get Report
are the only companies that currently compete to develop and sell the high-function integrated human resource management and financial management services software for large enterprises.
"This lawsuit seeks to ensure that there will continue to be vigorous competition in this important industry," Pate said.
Antitrust experts and financial analysts had predicted that Oracle would be blocked if Justice Department regulators use a narrow definition of the application software market. A wider definition, by contrast, would have included competitors such as
Microsoft
(MSFT) - Get Report
that are slowly expanding into the enterprise space, as well as more specialized players such as
Siebel Systems
(SEBL)
and
i2 Technologies
(ITWO)
that concentrate on specific areas such as customer-relationship management and supply-chain software.
Meanwhile, Oracle has proposed a slate of directors for the PeopleSoft board and a measure to go before shareholders at the company's annual meeting March 25 in order to remove a poison pill provision. But that effort becomes moot if the government succeeds in blocking the acquisition.
The PeopleSoft board has steadfastly rebuffed Oracle's overtures, saying Oracle's price was too low each of the three times the company raised its bid. PeopleSoft executives also have said its company is more valuable on its own, and cited a slow antitrust review as a reason to oppose Oracle's move.
Investors, meanwhile, started taking Oracle more seriously after its last move sweetening its bid to $26 a share, a premium over its current trading price.