What's next for Oracle?
Published: 10 Sep 2004 15:05 BST
On Thursday, Oracle moved a giant step closer to its goal of acquiring rival software maker PeopleSoft when a federal judge ruled in its favour.
But the drama is not over just yet. The US Justice Department, Oracle's antagonist in the antitrust case, may yet file an appeal of Thursday's ruling. And PeopleSoft itself has some defences in place that could keep Oracle at bay.
Here's a quick guide to how the tug-of-war developed and to what may happen in the coming weeks and months:
In which market do Oracle and PeopleSoft compete?
It's a $22bn software market consisting of companies that sell programs designed to automate corporate functions, such as billing customers, updating employee records and processing orders.
Who are the other players?
SAP, Oracle and PeopleSoft are the largest suppliers of such software, but the market is also populated by hundreds of smaller, more specialised companies. In his ruling, Walker said the Justice Department did not prove that the business software of "numerous other vendors", including Lawson Software, American Mangement Systems and Microsoft, does not compete with the similar products of the three biggest players. Also, Microsoft entered the market a couple of years ago with the acquisitions of Great Plains Software and Denmark's Navision.
Why did Oracle and the Department of Justice go to court?
The Justice Department filed suit against Oracle in February, charging that Oracle's proposed acquisition of PeopleSoft -- an offer now at $7.7bn -- would reduce competition and result in price hikes for the software that big companies use to organise their accounting, sales and human resources activities.
Oracle decided to challenge the suit, the first time a high-technology company has fought a government decision to block a merger since SunGard Data Systems, a disaster recovery company, defeated a Justice Department injunction blocking its $825m acquisition of Comdisco's disaster recovery assets in 2001.
Why does the US government oppose Oracle's takeover plan?
The Justice Department said the purchase of PeopleSoft would leave very large companies with just two suppliers of key business software -- Oracle and Germany's SAP. Because other companies don't compete at the level of the current big three, the two players remaining after the merger would form an illegal duopoly, the agency argued.
Why does Oracle want to acquire PeopleSoft?
Oracle chief executive Larry Ellison testified at the trial that acquiring PeopleSoft is a matter of survival in an increasingly competitive market. Oracle launched its bid for PeopleSoft last year, just after PeopleSoft announced its intention to merge with rival J.D. Edwards. The J.D. Edwards deal helped PeopleSoft leapfrog Oracle for the number two spot in the business applications market, behind SAP. Oracle's takeover bid also followed a period of relative stagnation of its core database software business and flagging effort to narrow the market share gap with SAP in the applications market.
When and where was the trial?
The trial began 7 June and lasted about six weeks, ending on 20 July after closing arguments. The nonjury trial was heard by Judge Vaughn Walker of the 9th Circuit US District Court in San Francisco.
What happened at the trial?
The Justice Department relied heavily on the testimony of corporate software buyers, including Verizon Communications, PepsiCo, DaimlerChrysler, the state of North Dakota and New York's Erie County. Many of the customer witnesses frowned on the proposed merger, saying it would leave them with too few choices.
The trial also led to the revelation that Microsoft had held preliminary merger talks with SAP. Oracle offered the talks -- abandoned well before the trial began -- as proof that Microsoft intends to become a direct competitor in the business applications market. Other highlights included testimony from Oracle chief executive Larry Ellison and president Safra Catz.
Will the government appeal the ruling?
For now, the Justice Department says it is reviewing its options. It has 60 days from US Judge Vaughn Walker's 9 September ruling to file an appeal.
The decision against the Justice Department could make future enforcement of antitrust law in high-tech markets tougher. An appeal is probable because there are few antitrust precedents in the software industry, and some of the economic theories introduced in the case have rarely been challenged in court. All this makes proper application of the law in this case subject to debate, antitrust attorneys said.
When is an appellate court likely to issue a decision?
A ruling from the appellate court would probably take three to six months -- but could take longer, experts say.
Is the Oracle-PeopleSoft merger now certain?
Not exactly. PeopleSoft's board may say Oracle's $21-per-share offer undervalues the company. Even if Oracle sweetens the offer, PeopleSoft could reject it.
If the deal continues as a hostile takeover, Oracle's next obstacle is PeopleSoft's "poison pill". The company is suing PeopleSoft in an effort to revoke the anti-takeover provision. That trial is scheduled for 27 September. If it loses that case, Oracle could launch a proxy battle for control of PeopleSoft's board at the company's annual shareholder meeting next spring.
What about the European Union? Isn't it still reviewing the deal?
Yes. European regulators put their review of the merger on hold, pending a decision from US courts. Although Europe issued a preliminary set of objections to the deal earlier this year, few see regulators there ruling against the deal. For one thing, the Europeans usually agree with American regulators on antitrust cases. In addition, SAP, Oracle's top competitor, has greater market share in Europe than in the United States, making antitrust charges against Oracle harder to stick.
Where does PeopleSoft stand?
PeopleSoft said it will "review the implications" of the ruling and noted that it had rejected Oracle's previous offers. PeopleSoft is suing Oracle, alleging that the company designed the attempt solely to damage PeopleSoft's business. PeopleSoft CEO Craig Conway, a former Oracle executive, has been outspoken in denouncing the Oracle bid. Under his leadership, PeopleSoft created a customer refund programme soon after the Oracle bid was launched. The programme puts any company that acquires the firm on the hook for nearly $2bn in payouts to its customers.
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