EU Clears Oracle for PeopleSoft Takeover

by Michael Singer

UPDATED: Oracle sees another obstacle disappear in its $7.7 billion hostile takeover bid.

UPDATED: European Union regulators will not obstruct Oracle's hostile takeover bid for PeopleSoft, officials said Tuesday.

After a lengthy probe, the European Commission (EC) said there was not enough evidence to suggest that competition would suffer under the current $7.7 billion offer to merge the two companies. The commission said the enterprise software market segment has other players with multinational activities beside Oracle, PeopleSoft and market leader SAP AG , the three most visible players.

The ruling is one more helpful indicator in Oracle's quest to acquire its rival. Recently, a federal judge ruled against the U.S. Department of Justice's antitrust case against the merger.

Unlike the DoJ's argument, however, the EC said it realized that that there are separate markets for "high-function" financial planning and reporting (FMS) and human resources processes (HR) software. The commission also established that the markets are worldwide in scope.

"The commission reached this conclusion after analyzing hundreds of HR and FMS bids launched by large and complex enterprises over the last couple of years," the EC said in a statement. "The commission also carried out various econometric tests with this data, which revealed that Oracle's bidding behavior was not particularly affected by the specific identity of the rival bidders in the final rounds of a given bidding contest, i.e. the presence of PeopleSoft or SAP as rival did not necessarily give rise to more aggressive discounting compared to Oracle's behavior vis-a-vis other bidders."

In its ruling, the EC identified vendors such as Lawson, IFS, Intentia and QAD as other large-class competitors that could hold their own in a competitive bidding war. Regulators were also quick to point out that they see Microsoft as "a competition constraint" in the mid-market that only managed occasionally to win bids in the "enterprise" space.

Yankee Group analyst Mike Dominy told internetnews.com the EC's conclusion should come as no surprise but that Oracle's next step toward PeopleSoft is much more important development to watch.

"Now Oracle needs to offer an attractive price and devise an effective customer management program," Dominy said. "Oracle will naturally want to neutralize PeopleSoft's CAP before finalizing a deal to acquire PeopleSoft. I am sure teams negotiating the deal came identify a way to remove the CAP as a inhibitor to executing the deal."

Since June 2003, the EC had started and stopped its query several times while it waited for Oracle to deliver key documents. European officials had hinted that they wanted to wait until the U.S. courts had enough time to sort through their own antitrust issues.

Representatives with Oracle were not immediately available to comment on the EC's ruling. Last week, Oracle extended its tender offer for all of the outstanding stock of PeopleSoft until Friday, Nov. 5.

PeopleSoft issued a statement that "its Board of Directors will review in due course the implications of today's decision." The Pleasanton, Calif.-based firm has historically opposed the terms of acquisition, saying that $21 per share is less than it hoped considering it reported $699 million in total revenue for its third quarter. Shares of PeopleSoft closed at $20.09 Tuesday.

Even though the EC has approved the offer, Oracle execs still face a gamut of other obstacles, including a shareholders' vote and the usual regulatory approval process before the merger is official.

The thing that Oracle needs to do is to build a leadership team to take the product lines and give SAP a run for its money," Joshua Greenbaum, a principal with Enterprise Applications Consulting, a technology and marketing consultancy, told internetnews.com.

"Oracle has been too focused on the art of the deal and not on the art of the enterprise product. They need a clear direction to recover some of the lost ground as a result of this year and a half long battle. At the end of the day, Oracle and PeopleSoft are battered companies and all of that effort by [Oracle CEO Larry] Ellison will be for naught unless they can define how new innovation can come from Oracle. I don't think it is impossible. PeopleSoft did it with J.D. Edwards."

In his recent commentary entitled The Beginning of the End of PeopleSoft, Greenbaum said he thought the recent departure of Craig Conway as CEO was a clear sign that PeopleSoft was ready to move on.

Oracle is also awaiting a ruling in its recent trial to remove so-called "poison pills" like its Customer Assurance Program (CAP) from PeopleSoft's charter.

  This article was originally published on Tuesday Oct 26th 2004
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