10 June 2004 The US Department of Justice (DoJ) yesterday strengthened its case against Oracle’s planned hostile takeover bid of PeopleSoft with convincing testimonies from US telecoms operator Verizon Communications and computer giant IBM.
On day three of the hearing, Laurette Bailey, executive vice president of IT at Verizon, a big PeopleSoft customer, testified that the loss of customer choice in enterprise applications software would effect a “much less vibrant market.”
The statement supported the DoJ’s argument that the proposed hostile takeover of PeopleSoft by Oracle would result in just two market leaders — Oracle and SAP. The DoJ believes that the merger would unfairly reduce competition in the market.
In her testimony yesterday, Bailey said: “The three contenders we believe are in the market are Oracle, PeopleSoft and SAP. Those three companies have superior technology that is kept to current levels.” The DoJ argues that a duopoly of SAP and Oracle would not be in the best interests of customers because it would lead to higher prices and less innovation.
But Oracle has strongly argued that competition would not be reduced in the event of a takeover, as there are more than three potential suppliers. On Tuesday, Oracle produced countless PeopleSoft documents to support its argument. These include PeopleSoft papers outlining competitive pressure from Lawson Software, American Management Systems (AMS) and others.
Also on the Department’s witness list yesterday was Nancy Thomas, a leader in IBM’s business consulting services group. She argued that the obvious choice for large, sophisticated companies in the enterprise applications market is always one of the “big three”, as other suppliers are simply not in the same league.
Oracle’s defence attorney, Greg Lindstrom, insinuated that fears of IBM losing database sales to Oracle in the event of a PeopleSoft acquisition slanted Thomas’s testimony. Under cross-examination, Thomas conceded that IBM has taken a public position against Oracle’s hostile takeover bid.
Oracle first announced its takeover bid for PeopleSoft at the beginning of June last year, with an opening offer of $5.1 billion. Today it is offering of $7.7 billion after withdrawing a higher $9.4 billion bid.
The DoJ monopoly hearing is just the first hurdle in the way of Oracle. European monopoly regulators are also waiting with bated breath to hear the outcome of the hearing, as it will have a groundbreaking impact on the industry as a whole.
The court will hear testimonies from many PeopleSoft customers and economic savants over the next two weeks. Oracle will then present its case until early July, which should conclude the four-week proceedings.