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After four rejected offers, Oracle heads to court

After a year of colorful drama, Oracle Corp.'s seesawing takeover bid for rival business software maker PeopleSoft Inc. is taking a more prosaic turn into federal court, where a monthlong antitrust trial may make or break the proposed deal.
/ Source: The Associated Press

After a year of colorful drama, Oracle Corp.'s seesawing takeover bid for rival business software maker PeopleSoft Inc. is taking a more prosaic turn into federal court, where a monthlong antitrust trial may make or break the proposed deal.

Opening statements are set for Monday, and if the court rules that an Oracle takeover would violate antitrust laws, then barring an Oracle appeal, the drama will end.

To date, PeopleSoft has spurned four different takeover offers in the stormy courtship. The latest bid is $7.7 billion, or $21 per share — a price that might look attractive if Oracle clears the antitrust hurdle that has helped shield PeopleSoft.

Oracle's offer is 15 percent to 20 percent above the recent trading range of PeopleSoft's stock, which has sagged amid concerns about the company's sales outlook.

Despite the high stakes, the non-jury trial may be less enthralling than the past year of venomous wrangling between two of the world's three largest makers of business applications software — the computer coding that automates many administrative tasks.

The face-off quickly turned into a Silicon Valley soap opera, complete with a catty personality clash pitting Oracle's swashbuckling chief executive officer, Larry Ellison, against his feisty former subordinate, PeopleSoft CEO Craig Conway.

The trial is likely to be filled with dry testimony about the market definitions for products so abstruse that U.S. District Judge Vaughn Walker held a pretrial tutorial to get a better understanding of the technology.

While much of the evidence and arguments only will be interesting to technology nerds and antitrust wonks, the trial may have spicy moments, with lots of court time for the often-entertaining Ellison, who will appear in a videotaped deposition and in the witness box. Oracle's lawyers plan to spend up to six hours grilling the equally outspoken Conway.

Microsoft Corp., the software giant that has long been a prime target of Ellison's derision, will provide more intrigue.

The question of whether Microsoft is plotting an expansion into business applications software is one of the big sticking points in the case. The government and Oracle plan to call different Microsoft executives — Douglas Burghum and Cindy Bates — as the two sides each spend two weeks trying to prove their arguments.

Although the trial is scheduled to end July 2, Walker — a former antitrust lawyer himself — isn't expected to issue his decision in the case until August or September. If Walker's decision is appealed, the saga could drag on until 2005.

The U.S. Department of Justice, backed by 10 states, alleges Oracle shouldn't be allowed to buy PeopleSoft because the combination would cause irreparable damage to large U.S. companies that buy business applications to run their accounting and personnel operations.

Regulators argue that Oracle, PeopleSoft and market leader SAP of Germany are the only software makers competing in this high-end niche. Under the thesis, Oracle's proposed takeover of PeopleSoft would winnow the market into an illegal duopoly _ a dynamic that would drive up prices and lower the quality of software and product support for the country's largest companies.

"When the evidence is in, the likely anticompetitive effects of the proposed acquisition will be readily apparent," government attorneys predicted in a pretrial brief.

Oracle ridicules the concept, contending the government has created too narrow of a market definition that excludes scores of other business software suppliers. The government's case hinges on "the most confusing, meaningless market definition ever pursued in a merger challenge," Oracle's attorneys argued in their pretrial brief.

Both arguments will rely heavily on evidence provided by the other side. Justice Department lawyers also say Oracle's own internal sales documents will show that PeopleSoft frequently exerts competitive pressure that forces Oracle to lower its prices.

Oracle thinks the government's own actions will help prove the company's contention that big companies and other large enterprises will continue to have plenty of other business applications software options, even if PeopleSoft is acquired.

One probable piece of evidence will be a recent $24 million contract the Justice Department signed to use financial management software made by American Management Systems Inc. Oracle may also point out that Michigan and Massachusetts, two of the states that joined the Justice Department in the case, use business applications software made by Lawson Software and American Management Systems, respectively.

The trial is expected to add millions of dollars more to the already hefty bill that Oracle has run up pursuing PeopleSoft. Through February, Oracle had spent $48.4 million in pursuit of its prey. The chase hasn't been fruitful for Oracle's shareholders. Although its sales and profits have been improving, Oracle's stock has declined by 17 percent since the saga began a year ago.