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DOJ files suit to block Oracle takeover bid

In a long-awaited ruling, antitrust authorities and several state attorneys general said today that they going to court to stop Oracle's hostile acquisition of PeopleSoft.

The Department of Justice filed a lawsuit today in U.S. district court in San Francisco to block Oracle Corp.'s proposed $9.4 billion hostile takeover of PeopleSoft Inc.

According to the Justice Department, the combination of Redwood Shores, Calif.- based Oracle and Pleasanton, Calif.-based PeopleSoft would harm the public by reducing competition, raising prices and reducing innovation.

"We believe this deal hurts competition pure and simple," said R. Hewitt Pate, the department's antitrust chief, in a release. "Blocking this deal protects competition that benefits major businesses, as well as government agencies that depend on competition to get the best value for taxpayers' dollars."

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Department authorities said that combining Oracle and PeopleSoft would have left only one other software vendor in the enterprise resource planning market, Germany-based SAP AG.

The attorneys general of seven states are joining the suit.

Oracle, which is now offering investors $26 in cash for each PeopleSoft share, is expected to challenge the suit. It responded today with a short statement.

"The Department of Justice decision follows an aggressive lobbying campaign by PeopleSoft management," said Jim Finn, an Oracle spokesman. "It is inconsistent with the overwhelming evidence of intense competition in the markets we serve, and we believe it is without basis in fact or in law. A combined Oracle-PeopleSoft will significantly benefit all customers and shareholders involved."

The Department of Justice decision is the latest in a series of events that have riveted the enterprise software market since Oracle first announced its plans for a hostile takeover in June 2003, four days after PeopleSoft announced its own plans to acquire rival J.D. Edwards & Co.

Shortly after Oracle's announcement, PeopleSoft sped up its $1.7 billion acquisition of J.D. Edwards, driving up the cost of Oracle's takeover. It closed that acquisition this summer, shoring up its midmarket and manufacturing-specific software.

PeopleSoft has also battled the takeover with a customer assurance program that would force Oracle to pay a sum equal to two to five times customers' licensing fees if it discontinues PeopleSoft products.

PeopleSoft hailed the DOJ's decision.

"Now that the antitrust day of reckoning has arrived and the Justice Department has announced its decision to sue to block the transaction, it is time for Oracle to abandon its efforts to acquire the company," said PeopleSoft CEO Craig Conway in a statement. "Both companies should now devote all of their energy to competing in the marketplace to provide better products and services for customers. That's the PeopleSoft way of creating greater value for our stockholders."

"My sense now is that we're in for a long series of legal wrangling between the Department of Justice and Oracle," said Steve Bonadio, analyst with Stamford, Conn.-based Meta Group. "At this point, it's good news for PeopleSoft users. They can breathe a temporary sigh of relief. But my sense is Oracle is not going to let this go, and it could take months -- if not years -- of legal proceedings. Oracle is so invested at this point it would be an unlikely thing for them to pull out."

Oracle faces yet another regulatory hurdle from the European Union, which has also launched an investigation into the deal and could possibly block it. If authorities there rule against the takeover, Oracle faces the prospect of fighting a battle on two continents to keep the takeover alive.

"The U.S. did it in World War II, but I don't know if Oracle is going to have the wherewithal to fight two battles for this prize," Bonadio said. "The DOJ is bad enough. The EU coming down against it would not bode well."

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