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Antitrust move deals setback to Oracle

Oracle's $6.3 billion hostile bid for PeopleSoft suffered a setback Monday when federal antitrust regulators requested more information on the offer, a move that could delay for months resolution of Silicon Valley's software takeover drama.

The Justice Department asked for more information from Oracle of Redwood Shores as part of its review for possible antitrust issues in the takeover bid PeopleSoft's board has rejected. Although the government's move was widely expected, it buys more time for PeopleSoft of Pleasanton to close its own friendly acquisition of J.D. Edwards of Denver. Completion of that $1.75 billion deal could further complicate Oracle's bid.

``Today's development you can view as a modest victory for PeopleSoft, but the battle is far from over,'' said Richard Vernon Smith, mergers and acquisitions attorney at Orrick, Herrington & Sutcliffe in San Francisco. ``There are many other junctures coming up where the advantage can turn for one or the other.''

``The investigation is continuing,'' said Justice Department spokeswoman Gina Talamona.

Other fronts

As Oracle slogs through the antitrust review process, the battle moves to other fronts:

PeopleSoft ended its latest quarter Monday and analysts will be watching to see how much damage Oracle's offer did to PeopleSoft's earnings and its ability to close sales with customers.

The Justice Department has until July 14 to request more information from PeopleSoft on its merger with J.D. Edwards.

A Delaware judge will hold a hearing July 16 on Oracle's lawsuit to have PeopleSoft's poison-pill anti-takeover provisions thrown out.

Observers are watching to see if Oracle will raise its bid a second time above the current $19.50 a share. That would step up pressure on PeopleSoft's board to negotiate with Oracle.

``I think it's a 50-50 chance, a true tossup whether this goes through,'' said Robert Austrian, a Banc of America Securities analyst, who owns no stock in either company and whose bank may be pursuing business with both.

PeopleSoft has cited antitrust issues as a reason for spurning Oracle's bid. PeopleSoft argues that if Oracle buys it, large corporate customers would only have two choices for business software applications -- SAP of Germany or Oracle-PeopleSoft.

Oracle must now file volumes of additional paperwork. Once that is filed, the government has 10 days to complete its review. Because the government could sue to block a merger, companies typically wait until the full review is complete before moving ahead. The whole process could take from a few weeks to several months.

``We were not surprised given the size and scope of the transaction and the fact that PeopleSoft is also proposing its own transaction, which is undergoing regulatory review,'' Jim Finn, an Oracle spokesman, said in a statement. ``We remain optimistic that the Department of Justice will conclude that this transaction is not anti-competitive, and that we will complete the transaction in a timely manner.''

Observers are now waiting to see whether the Justice Department will make a similar request for additional information from PeopleSoft before a July 14 deadline.

Speculation

While many observers expect the PeopleSoft-J.D. Edwards merger to raise fewer antitrust issues, there was still speculation that the Justice Department would make a second request of PeopleSoft so as not to appear to favor either PeopleSoft or Oracle.

``Given the political nature of this case, I can't imagine the DOJ not asking for additional information from PeopleSoft,'' said Jason Maynard, an analyst at Merrill Lynch, who does not own stock in either of the companies and whose firm is pursuing business with both companies.

If there is no second request by July 14, PeopleSoft and J.D. Edwards probably would be able to close their deal within a few days. Oracle then would have to decide whether it wanted to acquire both companies at a higher cost, adjust its offer or abandon its takeover bid.

Meanwhile, Oracle stepped up its efforts to woo PeopleSoft customers anxious about whether the Redwood Shores software giant would continue to support PeopleSoft products after a merger. On Monday, Oracle launched a new ad campaign aimed at reassuring PeopleSoft customers and said it will contact each of them to discuss its plans.

``It is not necessary for PeopleSoft customers to migrate to a new platform for this acquisition to be compelling for our shareholders and for PeopleSoft customers,'' said Charles Phillips, Oracle's executive vice president. ``Keeping PeopleSoft customers satisfied -- on whichever product they choose to use -- is a top priority.''

PeopleSoft shares fell 12 cents to $17.56 a share Monday. Oracle's stock dropped 42 cents to $12.01 a share.

 
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