A federal judge rejected the government's attempt to block Oracle Corp.'s $7.7 billion takeover bid for rival PeopleSoft Inc., concluding a combination between the business software makers wouldn't throttle competition in a narrow market niche.
U.S. District Judge Vaughn Walker's 164-page decision Thursday provides a major boost to Oracle's hostile bid for PeopleSoft, which has repeatedly cited antitrust concerns as one of the primary reasons for snubbing its unwelcome suitor.
The Justice Department and 10 states, siding with PeopleSoft, brought an antitrust lawsuit here to block the bid nearly seven months ago. The suit, contested in a monthlong trial this summer, represented another dramatic chapter in a Silicon Valley soap opera starring Oracle's flamboyant CEO, Larry Ellison, and a feisty former subordinate, PeopleSoft CEO Craig Conway.
Pleasanton-based PeopleSoft has rebuffed Oracle buyout offers four times in the past 15 months, but the company now may find it more difficult to resist its relentless rival since Walker has removed the antitrust hurdle.
Since the antitrust case began, PeopleSoft has become more vulnerable because of a sales slowdown that has decimated its profits and stock _ a phenomenon that figures to make Oracle's $21-per-share offer more appealing to many investors. PeopleSoft has blamed its disappointing performance on customer anxieties that were aggravated by the highly publicized trial.
PeopleSoft's shares rose 46 cents to close at $17.95 on the Nasdaq Stock Market before Walker released his ruling, then surged $2.45, or nearly 14 percent, in extended trading. Oracle's share gained 7 cents to close at $9.93 on the Nasdaq, then added 30 cents in the late session.
"This decision puts the onus squarely on the board of PeopleSoft to meet with us ... so that shareholders can accept our offer," Oracle chairman Jeff Henley said in a statement.
After Walker's decision, Oracle extended the deadline to accept its offer by two weeks to Sept. 24. It marked the 11th extension since Redwood Shores-based Oracle began to stalk its rival. Through Thursday, 26.4 million PeopleSoft shares, or about 7 percent of the company's stock, had accepted Oracle's offer.
Without setting a timetable, PeopleSoft said its board of directors will review the implications of Walker's decision. The company emphasized that the board has previously concluded Oracle's current bid is "inadequate from a financial point of view."
Assistant Attorney General R. Hewitt Pate, who runs the Justice Department's antitrust division, said he was disappointed with Walker's decision. "The department is considering its options," he said. Pate told reporters in July that he would consider an appeal if Walker sided with Oracle.
Walker said he is staying his order for 10 days to allow for a possible appeal.
If it stands, Walker's decision unleashes Oracle to accelerate its quest to tilt the competitive landscape in the $20 billion market for business applications software _ the computer coding that automates a wide range of administrative tasks.
The antitrust case hinged on a small slice of the overall market _ a $500 million niche focused on complex software applications that help manage financial and personnel departments for large companies, government agencies and schools.
Because Oracle, PeopleSoft and Germany-based SAP dominate this market segment, antitrust regulators argued prices will rise and customer support will dwindle if one of the three rivals is eliminated.
The Justice Department summoned executives from major companies like Verizon Communications and DaimlerChrysler AG to support its case, but Walker described the testimony as "largely unhelpful" in his ruling.
"Unsubstantiated customer apprehensions do not substitute for hard evidence," Walker wrote.
With his ruling, Walker accepted Oracle's argument that the government had manufactured a confusing market definition that overlooked dozens of smaller vendors, as well as a looming competitive threat from Microsoft Corp.
Oracle is counting on a PeopleSoft takeover to give it the added muscle it needs to battle SAP as well as more diversified technology giants like Microsoft and IBM Corp.
The decision does not automatically doom PeopleSoft.
European regulators are still assessing whether an Oracle takeover would violate antitrust laws on that continent. What's more, PeopleSoft can trigger an antitakeover defense known as a "poison pill" to make an Oracle acquisition too expensive.
"There's still a lot of fight left," said Forrester Research analyst Paul Hamerman. "PeopleSoft has a great deal of resolve to keep this from happening."
High-tech investment banker Ken Marlin also expects PeopleSoft to continue to resist although "as a matter of logic, the board should now be planing to sit down with Oracle to negotiate over the (sales) price. But not much has followed logic since this thing started."
The takeover battle has been expensive for both sides. Based on the most recent disclosures made by the companies, Oracle had spent $60 million on the case while PeopleSoft had spent $70 million.
If it's determined to stay out of Oracle's clutches, PeopleSoft ultimately may need to find a financial ally.
There's been indications PeopleSoft might be able to find some deep-pocketed friends. Confidential documents released during the antitrust trial showed that Microsoft and IBM mulled possible investments in PeopleSoft to help thwart Oracle's takeover attempt.
Oracle's takeover bid rattled Microsoft so badly that the software giant discussed a possible acquisition of SAP, but the talks were called off earlier this year.