DOJ Staff Pans Oracle/PeopleSoft Takeover

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Antitrust lawyers of the U.S. Department of Justice (DOJ) recommended
against Oracle’s $9.4 billion takeover attempt of rival
PeopleSoft, in what could be a major setback for the
enterprise software company.

In a statement, PeopleSoft said the DOJ had issued a preliminary finding and
that the DOJ expects to come to a conclusion about the acquisition by March
2.

The staff at the DOJ submitted their recommendation to block the deal to
assistant attorney general Hewitt Pate for final approval. Pate is empowered
to make the DOJ’s final decision regarding PeopleSoft’s fate and those in
his position have a history of taking the recommendations of the DOJ staff.

If Pate agrees with the other attorneys, the DOJ will file an injunction to
block the deal. Oracle would then have likely appeal and take on the DOJ in
federal court.

DOJ spokesperson Gina Talamona would neither confirm nor deny the DOJ’s
staff’s finding and said the DOJ would not comment on internal processes. A
person familiar with the process told internetnews.com Pate is expected to meet with Oracle and its legal team before making a decision.

Oracle followed with its own press statement but only alluded to the notion
that the DOJ’s preliminary decision was in PeopleSoft’s favor. Oracle lead
counsel James Rill conceded that the recommendation was sent to Pate, but
didn’t address its contents.

“[The decision] will take into account not only the recommendation of the
investigating staff, which we understand was forwarded to the Assistant
Attorney General today, but also facts and arguments presented to senior
Division decision makers by the merging parties,” said Rill.

The closest Rill came to acknowledging that the DOJ staff motioned to block
the deal came in his assertion that “over the course of my 45 years of
antitrust practice I have seen many instances in which the Assistant
Attorney General’s decision differed from that recommended by the
investigating staff. This process simply is not complete,” Rill said.

Oracle spokesman Jim Finn repeated the Redwood Shores, Calif.’ company’s
mantra. “While no decision has yet been made, Oracle believes this merger will
eventually be approved,” Finn said.

Observers see other scenarios.

Ken Marlin, managing partner of New York-based Marlin & Associates, a
mergers and acquisitions investment bank focused on media and technology,
said he didn’t know if the recommendation was actually made.

Marlin found it curious that PeopleSoft stated definitively that the
preliminary decision was in its favor, while Oracle didn’t concede the
setback in its own press statement. After all, he told
internetnews.com, it was Oracle who submitted its bid to the DOJ for
approval — not PeopleSoft.

The prevailing logic is that Oracle would hear from the DOJ and issue
statements first, followed by reaction from PeopleSoft. Instead, the exact
opposite took place late Tuesday night. Moreover, PeopleSoft spokesman Steve
Swasey told internetnews.com Tuesday afternoon that PeopleSoft did
not expect to hear from the DOJ.

“I don’t know that that’s true,” Marlin said of PeopleSoft’s assertion that
the DOJ staff had relayed a decision to Pate. “The DOJ shouldn’t be giving
the information to PeopleSoft. Oracle made the filing, so they would be
likely to hear from the DOJ. Oracle doesn’t like those things to leak.”

Marlin was also confused by the paucity of facts.

“Assuming that it’s true [that the DOJ staff relayed a decision to Oracle
and PeopleSoft], it’s also being positioned as black or white, and a thumbs
down, fill it or kill it decision is rarely that black and white. Normally
the DOJ expresses the view that a certain business combination might work.
Or, I’d expect the DOJ to cite specific concerns with certain product
lines.”

Mike Dominy, analyst with the Business Applications and Commerce practice at
The Yankee Group, called the decision a blow to Oracle’s nearly
nine-month-old attempt to buy its Pleasanton, Calif.-based rival, but hardly an insurmountable obstacle.

“My sense is that Oracle still has room to maneuver,” he said, noting that
an Oracle appeal would likely be forthcoming in the event of a decision not
in its favor. He also echoed
Marlin’s sentiments about an alternative business combination, in which the
DOJ might approve the acquisition should Oracle make concessions, such as
divesting J.D. Edwards from PeopleSoft.

“The question becomes: is there a question is there any scenario in which
Oracle and PeopleSoft can be combined that would be agreeable,” Dominy said.
“So there is little more of this to play out. It’s not a black and white
issue.”