- The Washington Times - Thursday, September 30, 2004

The Department of Justice’s antitrust division would demonstrate both a clear-eyed grip on reality and magnanimity by dropping its efforts to block a merger between Oracle and PeopleSoft. Should Assistant Attorney General Hewitt Pate pursue the case until the bitter end, PeopleSoft would be weakened and Justice Department trustbusters could suffer another image-bruising legal defeat.

On June 6, 2003, the Oracle software company made an unsolicited bid for PeopleSoft, a firm that has established a profitable niche business selling and supporting software applications for human-resource management. Due in large part to PeopleSoft’s support of its software applications, the company has earned an enviable client list that Oracle has had its eye on.

The Justice Department sued to block the merger in February 2004, claiming there were only three major players in the specialized personnel and finance software industry. On September 9, the department lost the case due to some fundamental problems with its premise.

The Justice Department ignored a host of other emerging and established competitors by identifying only three big players in the industry. In his ruling, U.S. District Judge Vaughn Walker said that the department’s evidence on the market concentration that would result from the merger was “startling[ly] sparse.” He wryly added that the Justice Department’s witnesses seemed to have developed “Lawson amnesia” in their inability to recall Oracle’s dealings with Lawson Software, one of the many competitors the department deigned not to include on its industry list.

The broad consensus among industry analysts is that there is an oversupply in the enterprise software industry and that mergers could help energize the sector and attract more investment. The current behemoth in the business applications market, the German-owned company SAP AG, could face some healthy competition from an Oracle-PeopleSoft merger. Such investment is vital to the overall U.S. economy. Due to a lack of innovation, corporate capital spending has lagged behind expectations.

Furthermore, dragging out the case could hurt PeopleSoft. The uncertainty regarding the merger has caused a number of PeopleSoft clients to drop the company. SAP has benefited from PeopleSoft’s troubles, with a 23 percent gain in U.S. software sales for the second quarter. For the same period, PeopleSoft’s income fell a staggering 69 percent from a year earlier. Oracle’s cash offer for PeopleSoft of $21 a share is generous, valuing the company at almost $8 billion — about 26 times its earnings. The Justice Department should allow PeopleSoft’s shareholders to decide on Oracle’s bid.

EU antitrust czar Mario Monti has reportedly decided to clear the merger before his term expires on Oct. 31. Outdoing Mr. Monti in antitrust zeal would not be a positive part of Mr. Pate’s legacy.

Although the Justice Department faces a Nov. 8 deadline to decide whether to appeal Judge Walker’s ruling, word is that a decision could be imminent. For the sake of Oracle, PeopleSoft, American competitiveness and the department itself, Mr. Pate should drop the appeal definitively and permit finality of judgement in the trial court’s ruling.

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