Oracle's bid may get green signal

WASHINGTON: U.S. antitrust enforcers would likely approve Oracle hostile takeover of rival PeopleSoft Inc. but they might require Oracle to divest at least one of the companies' software products first, antitrust experts say.

Oracle would have a strong argument that consolidating with PeopleSoft would not hobble competition in the software industry, antitrust attorneys said.

However, the No. 2 global software maker might have to scale back its presence in the market for human resources software, where the two companies both have substantial share of the U.S. market, the attorneys said.

Oracle has said it wants to move PeopleSoft software innovations and features -- as well as PeopleSoft customers -- over to its own products after the $6.3 billion acquisition.

PeopleSoft's board of directors has rejected the proposed deal and filed a lawsuit to block it. Executives at PeopleSoft have criticized it as anti-competitive and proposed a $1.75 billion deal to buy smaller industry player J.D. Edwards & Co.

Oracle has responded by filing suit to block that deal and strip PeopleSoft of its takeover defenses.

Last week, Connecticut's attorney general raised antitrust objections to Oracle's proposed takeover of PeopleSoft and filed suit in federal court to block it.

Connecticut has a $100 million contract with PeopleSoft to upgrade the state's computer system. The state contends the deal would lead to higher prices and force PeopleSoft customers to replace software with other companies' products.

The antitrust questions were heightened by earlier statements from Oracle that indicated the company would stop development of new PeopleSoft products, attorneys said.

"It's a red flag," said one antitrust lawyer. "It gives life to the possibility that this is simply an effort to shut down a competitor."

Oracle has argued that combining the two companies offers the best chance to create a formidable competitor to SAP AG of Germany.

The company will likely make the case that consolidation is inevitable in the software business, and that there are no antitrust problems because of intense competition in the market for business enterprise software.

Microsoft Corp. the world's largest software company, recently acquired two business applications companies.

"There are enough big players now and there still will be enough big players," said Wharton marketing professor Peter Fader.

Oracle is the world's largest supplier of database management software. PeopleSoft is the second-largest business application provider. J.D. Edwards' strength is in software used to manage manufacturing operations, a subset of the business applications market.

The Justice Department, however, may look beyond the overall market for business enterprise software and zero in on individual software products used by businesses, such as accounting, supply chain management or customer relations.

In that case, antitrust attorneys said, the department could have some pointed questions about how the deal would affect competition in the market for human resource software.

"It's going to turn on how the Justice Department really looks at the facts of this case -- in terms of defining the market," said Richard Smith, a partner with the firm Orrick, Herrington & Sutcliffe LLP.

© Reuters