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DOJ opinion viewed as a blow to Oracle

An initial recommendation by the Department of Justice hurts Oracle's chances of acquiring PeopleSoft.

In what appears to be a significant blow to Oracle Corp.'s quest to acquire PeopleSoft Inc., antitrust division lawyers at the Department of Justice are recommending that the department file suit to block Oracle's acquisition of its smaller rival.

Attorneys for Oracle released a statement last night, saying that the initial recommendation by department investigators does not necessarily translate to defeat. A final department ruling is expected in March, but industry analysts say that initial recommendations are good indicators of final rulings from the attorney general.

A statement released by Oracle and attributed to attorney James Rill said in part: "In my experience, the assistant attorney general will take ample time to review the facts of this situation with an open mind and meet with Oracle before coming to a decision on the matter. This process simply is not complete."

The Justice Department investigation may not be over, but Oracle's chances of acquiring PeopleSoft have greatly diminished, said Michael Dominy, an analyst at the Boston-based Yankee Group.

"I think it's a significant blow to Oracle," said Dominy, who last week published a research note on the ongoing Oracle-PeopleSoft saga. "My stance has been that if the DOJ says flat out that they do not see this merger happening without antitrust problems, then that's a significant problem for Oracle."

However, Dominy said, it's obvious that Oracle will be looking for any wiggle room that the Justice recommendation may allow.

"If there is any crack, any space at all for maneuvering, then Oracle does have an opportunity to propose some sort of alternative," Dominy said.

For example, Dominy said, Oracle could propose to spin off J.D. Edwards & Co., which PeopleSoft recently acquired, to avoid having a monopoly in the enterprise resource planning (ERP) space.

"I'm sure the legal staff at Oracle is poring over the DOJ recommendation," Dominy said. "The probability of Oracle acquiring PeopleSoft looks pretty low at this point."

However, Oracle CEO Larry Ellison recently told USA Today that he would challenge any department decision. In a statement released last night, Oracle spokesman Jim Finn said: "While no decision has yet been made, Oracle believes this merger will eventually be approved."

I think it's a significant blow to Oracle.
Michael Dominy
analystYankee Group

The statement also said that PeopleSoft CEO Craig Conway is the one who suggested that the two companies merge, and it accused Conway of interfering at every step along the way, lobbying the Department of Justice to investigate the process while Oracle continued to raise its asking price. This week, many Wall Street observers were surprised when PeopleSoft once again rejected Oracle's bid, which has reached $9.4 billion.

"The initial proposal to merge PeopleSoft's applications business with Oracle's applications business came from PeopleSoft CEO Craig Conway, who proposed that he was the best person to run the combined companies' applications business, and never mentioned any antitrust concerns," said Finn's statement in part. "However, when Oracle countered by proposing to buy PeopleSoft, Conway said that he wouldn't sell at any price."

The finger pointing and hostility that has surrounded the proposed merger has many IT professionals and industry analysts wondering how much of the trouble now stems from the obvious distaste that Conway and Ellison have for each other. Among users, the nasty exchanges and creative legal maneuverings are commonly seen as a worthless distraction.

"The takeover creates too much uncertainty in the ERP marketplace," said Vince Brown, director of application development at Atlanta-based Acuity Specialty Products, a chemical manufacturing company that runs PeopleSoft HR.

Brown's company is currently conducting an ERP evaluation that includes a review of J.D. Edwards tools. In the end, Brown said, the proposed takeover makes both companies less appealing.

"People won't know what to do, or [they] won't commit to PeopleSoft, J.D. Edwards or Oracle," he said.

Neither Oracle nor PeopleSoft representatives were available for comment this morning.


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