Oracle defends PeopleSoft deal

David Lawsky

BRUSSELS: Software maker Oracle Corp defended its hostile $9.4 billion takeover bid of rival PeopleSoft Inc at a closed European Commission antitrust hearing, sources close to the situation said.

Oracle says the bid would spur competition, but antitrust regulators in both the United States and Europe have challenged the move as a threat to competition for some of the software used by large business customers.

Oracle argues the deal is "pro-competitive," allowing it to better compete with Germany's SAP, now the market leader, and Microsoft Corp.

Oracle has said Microsoft "is aggressively expanding its position in enterprise applications software."

But the Commission sees a far more closed market, saying it is concerned "the number of key players would be reduced from three to two -- Oracle and SAP -- in certain applications software markets."

The Commission and the U.S. Justice Department, which have worked closely on the case, say there is a special category of software which is used by big multinational companies to co-ordinate and plan their financial and human resources, and their relationships with customers.

PeopleSoft is the second largest producer of such software after SAP.

Competition regulators argue that the barriers to entry are high, in part because of the inability of other companies to scale the size of their software as a company's needs increase to that of a multi-national.

Oracle, however, argues the market is porous, open to new customers and denies it is simply consolidating the market from three to two major players.

HEARING CONTINUES THURSDAY

The hearing, set to last into Thursday, came as the Commission was more than halfway through its four-month in-depth review. Under the law, the European Commission must decide the case by May 11.

The European Commission decision will be binding on the two U.S. companies and any appeal would likely take years, almost certainly killing the deal.

For example, the Commission turned down General Electric's purchase of Honeywell in 2001 and the deal is long dead but the first court hearing hearings in that case begin this May.

The system is different in the United States, where the Department of Justice challenged the deal in February but must wait for the decision of a judge.

A trial before U.S. district Judge Vaughn Walker in San Francisco is scheduled to begin on June 7.

"That's the way the rules work -- we have legally binding deadlines and it is inevitable that we will rule before they do, doing what we think is best for the European consumer," said one European Commission official.

Some of those inside the European competition agency believe it would be better if the United States ruled first, although they understand that is impossible.

"The first to go will force the action of the other," said a person familiar with the views of those inside the Commission. "It is easier to be second."

© Reuters