Judge rules for Oracle in PeopleSoft case

NEW YORK – The judge presiding over the U.S. Department of Justice’s (DOJ) attempt to block Oracle Corp.’s proposed takeover of rival software maker PeopleSoft Inc. ruled in Oracle’s favour on Thursday, removing one obstacle preventing the hostile acquisition.

The decision means Oracle’s fifteen-month campaign to buy PeopleSoft through a US$7.7 billion (all figures in U.S.) cash tender offer to PeopleSoft’s shareholders will continue.

The DOJ failed to prove that a takeover of PeopleSoft by Oracle would be anticompetitive, Judge Vaughn Walker of the U.S. District Court for the Northern District of California wrote in his 164-page ruling.

“Because plaintiffs have not shown by a preponderance of the evidence that the merger of Oracle and PeopleSoft is likely substantially to lessen competition in a relevant product and geographic market … the court directs the entry of judgment against plaintiffs and in favor of defendant Oracle,” Walker wrote. He stayed his order for 10 days to permit the DOJ to seek an appeal.

The DOJ is disappointed by Judge Walker’s decision, assistant attorney general Hewitt Pate said in a statement. “The Department is considering its options,” he said.

The decision is a setback for PeopleSoft and a significant blow to the DOJ, but it’s far from a green light for Oracle. From the start, the biggest obstacle to the deal has been PeopleSoft’s “poison pill,” an anti-takeover provision in its bylaws that allows it to manipulate its shares to make a hostile acquisition prohibitively expensive. Oracle is challenging the legality of PeopleSoft’s poison pill; trial on that case is scheduled to commence Sept. 27 in Delaware’s Court of Chancery.

Oracle in a first reaction to the ruling said that it removes a significant roadblock to the acquisition. “This decision puts the onus squarely on the board of PeopleSoft to meet with us and to redeem their poison pill so that the shareholders can accept our offer,” Oracle chairman Jeffrey Henley said in a statement.

Oracle sent a letter to PeopleSoft’s board after the ruling, requesting a meeting, Oracle said in a statement. PeopleSoft in a statement said its board of directors will review the implications of the ruling. However, the Pleasanton, Calif., company added that its board already considered and unanimously rejected each of Oracle’s offers as inadequate.

Oracle began its pursuit of PeopleSoft in June last year. The DOJ sued Oracle in February on antitrust grounds, charging the proposed acquisition would eliminate one of only three players in the market for financial management and human resources software sold to large businesses.

Another obstacle facing Oracle in its continued quest for PeopleSoft is convincing PeopleSoft’s shareholders to take advantage of the buyout offer. Oracle is offering $21 per share and on Thursday extended its offer by two weeks until Sept. 24.

At the end of Thursday, about 26.5 million shares, or 7.2 percent of PeopleSoft’s outstanding shares, had been tendered into Oracle’s offer, the company said. That is up from 21.7 million shares as of Aug 27. The percentage may rise with the DOJ’s defeat, as shareholders anticipate a better chance Oracle’s bid will be successful.

PeopleSoft’s shares (PSFT) ended trading Thursday on the Nasdaq exchange at $17.95. The shares bounced up 13.7 percent in after-hours trading to $20.41. Oracle’s shares (ORCL) closed at $9.93 on the Nasdaq and were up 2.7 percent in after-hours trading at $10.20.

Oracle and PeopleSoft also remain locked in another legal battle in California’s Alameda County Superior Court, where PeopleSoft has charged Oracle with unfair business practices. Oracle countered with a complaint accusing PeopleSoft of illegally refusing to seriously evaluate Oracle’s bid, and of improperly creating a “customer assurance program” that could make an Oracle acquisition of PeopleSoft very costly for Oracle. The case is schedule for trial in November.

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