The US justice department went to court on Thursday to block Oracle's $9.4bn hostile bid for enterprise software rival PeopleSoft, arguing that a takeover would be anti-competitive.
The legal challenge was rejected by Oracle as being "without basis in fact or law". The decision, while not unexpected, is a victory for PeopleSoft which has fought a nine-month battle to remain independent. It is a setback for Larry Ellison, Oracle's charismatic chief executive.
"The Department of Justice decision follows an aggressive lobbying campaign by PeopleSoft management," said Jim Finn, 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."
Together with Germany's SAP, the two US companies dominate the market for enterprise software suites used by multi- national companies to run their human resources, financial and manufacturing operations.Click here
The justice department, which has been joined by seven states in opposing the deal, said that if the merger were allowed, it would eliminate competition between two of the nation's leading software companies, resulting in higher prices, less innovation and fewer choices for customers. "We believe this transaction is anti-competitive - pure and simple," said Hewitt Pate, assistant attorney-general in charge of the department's antitrust division. "Under any traditional merger analysis, this deal substantially lessens competition in an important market. 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."
PeopleSoft's board, led by Craig Conway, chief executive, has argued that the bid - which was raised by Oracle from $16 a share to $26 a share - undervalues the company. PeopleSoft has also accused Oracle of trying to undermine customer confidence in the company. Even at $26 per share, Mr Conway said on Thursday, the Oracle bid substantially undervalued his company.Click here
Mr Ellison has indicated that if the justice department ruled against the bid, Oracle might fight the decision in court, and in recent weeks there have been suggestions Oracle was laying the groundwork for a legal battle with the government.
Oracle shares closed up 0.7 per cent at $13.28. PeopleSoft shares fell 1.58 per cent to $21.78 on Thursday.