The Wall Street rumor mill is working overtime, spinning off speculation about how soon a decision will be announced in the U.S. government lawsuit aimed at blocking

Oracle's

(ORCL) - Get Report

proposed takeover of

PeopleSoft

(PSFT)

. The latest guess: Friday.

But like much else in the seemingly endless M&A imbroglio, the conventional wisdom is based on straws in the wind. One of the most amusing rumors holds that U.S. District Court Judge Vaughn Walker, who will decide the case, has been sighted at a restaurant proofing a document.

Whether Walker really was putting the finishing touches on his decision, or simply working on a crime novel, isn't known, of course. But nearly everyone close to the matter expects a decision within a week or two. Walker has said he wants to be done with the case by early September, and so far, the veteran jurist has kept the complex legal dance right on schedule.

Despite the buzz, PeopleSoft's stock has barely moved since the active phase of the trial ended in late June. Moreover, volume -- traditionally low during the summer -- has been somewhat below average. "The stock is trading like

the outcome is a 50-50 proposition," said a fund manager with a long position in PeopleSoft. "People came in thinking the government case was a slam-dunk, but Oracle put on a strong case. Now it's very hard to feel strongly one way or the other."

If Oracle does win, the hostile takeover is far from a done deal. PeopleSoft has a strong poison-pill defense in place, and an appeal by the U.S. Department of Justice is possible. But PeopleSoft's shares likely would get an immediate bounce. As of Thursday's close, the stock was trading at $17.25, 18% below the latest offer of $21 a share -- a significant difference, but far from the heftiest spread since Oracle made its initial bid in June 2003.

On Thursday, Oracle announced that it has extended its tender offer for PeopleSoft's common stock to midnight EDT on Friday, Sept. 10. The previously announced offer was set to expire at midnight EDT on Friday, Aug. 27.

Oracle-PeopleSoft Software Saga Timeline
Taking a look at the takeover drama.

Click for full-size image

If Oracle loses, PeopleSoft's shares probably will take a hit, slipping as far as the low-teens, said the fund manager.

However, in a recent research note, Friedman, Billings, Ramsey analyst David Hilal, wrote, "If the DOJ prevails, although we would expect some short-term weakness, we remain comfortable at current levels given PeopleSoft's strong cash flows (nearly $1 per share of free cash flow this year) and $4.40 per share in cash."

As for Oracle's prospects, Hilal noted that "although we do not believe there is much more downside given the recent weakness, we are always generally cautious heading into any company's fiscal first quarter (as is currently the case with Oracle), and we would look to revisit after the quarter." (His firm does no current investment banking business with Oracle or PeopleSoft.)

Another likely outcome of a government victory is a move by Oracle to acquire another software company. Oracle CEO Larry Ellison said as much in court, and a shopping list of Oracle's

potential targets was introduced as evidence during the trial.

Ellison's list is 10 software companies long, including

BEA Systems

(BEAS)

(BEAS)

and

Siebel Systems

(SEBL)

, both of which have gotten significantly cheaper this year.

Another attractive candidate is

FileNet

,

(FILE)

a maker of content management software, which is off about 30% since January.

Although there's been some speculation about a white knight coming to PeopleSoft's rescue, it's hard to imagine another company large enough to pay the hefty freight and positioned to make it worthwhile.

Ellison has said many times that

pure-play application companies such as PeopleSoft have no future. If Oracle's bid is killed, it's likely that PeopleSoft, which blames its recently poor performance on the uncertainty and fear created by the struggle, will be left alone to try to prove him wrong.