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2 companies act against Oracle bid

June 2003

2 companies act against Oracle bid

PeopleSoft, J.D. Edwards fight takeover

Friday, June 13, 2003

Carrie Kirby, Chronicle Staff Writer

Oracle was attacked on two fronts related to its recent hostile takeover effort, with PeopleSoft officially rejecting the giant firm's bid Thursday and J.D. Edwards filing two lawsuits against it.

PeopleSoft said its board unanimously rejected Oracle's $5.1 billion purchase offer because a combination of the two companies "raises significant antitrust issues" and because its $16-per-share offer is too low.

Bob Dutkowsky, J.D. Edwards' chairman, president and chief executive officer, agreed with PeopleSoft's rejection of Oracle's bid. Such a merger would have "a significant likelihood" of being struck down by regulators, PeopleSoft said in a prepared release. Between them, Oracle and PeopleSoft hold 37 percent of the market for software that automates business processes, according to Gartner Dataquest.

PeopleSoft's statement serves as a recommendation to shareholders, who each will decide whether to sell their shares to Oracle.

Before Oracle bid to buy PeopleSoft, the Pleasanton company had agreed to merge with Denver's J.D. Edwards, another business software maker.

Now, in a lawsuit filed in Denver City and County District Court, J.D. Edwards is accusing Oracle of interfering with its contract to merge with PeopleSoft and of plotting the takeover bid as a way to damage sales of J.D. Edwards and PeopleSoft.

In a suit filed in San Mateo County Superior Court, J.D. Edwards also accuses an Oracle Executive Vice President Charles Phillips of industrial espionage.

After working for years as an analyst at the investment bank Morgan Stanley,

Philips joined Oracle on May 16. The suit claims that Philips used his job as a Wall Street analyst to get inside information about J.D. Edwards that he is now using at Oracle to "assist (CEO Larry) Ellison in attempting to devastate J.D. Edwards through underhanded and illegal methods."

The San Mateo suit also names Oracle Corp. and Ellison. It includes accusations similar to those in the Denver suit as well as the industrial espionage claim.

"Clearly, PeopleSoft and J.D. Edwards prefer to fight in the courts than let shareholders decide," Oracle spokesman Jim Finn said in an e-mailed statement. "We believe that this case has no merit whatsoever."

Phillips was not available for comment Thursday. Oracle spokeswoman Jennifer Glass declined to describe his involvement in planning the PeopleSoft bid, except to say, "Larry has said repeatedly that this deal was under consideration for over a year."

Ken Marlin, with technology investment bank Marlin & Associates, said J.D. Edwards' contention that Oracle is interfering with its contract to merge with PeopleSoft is weak.

"The closest (legal) example I'm aware of that is even remotely similar is not similar enough -- the case where Getty Oil had an agreement to acquire Pennzoil, and then Texaco came along and convinced Pennzoil to merge with it," he said.

In that 1984 case, Getty successfully showed that Texaco had interfered with its contract.

Observers were also skeptical about PeopleSoft's prediction that a merger with Oracle would likely be struck down by regulators.

"This deal will see some serious antitrust scrutiny; however, it's doubtful that regulators would block this transaction. At most, they'll carefully examine the impacts and demand modifications if necessary," Chicago antitrust attorney Hillard Sterling said.

For example, regulators might demand that Oracle sell off one or more PeopleSoft products.

Silicon Valley antitrust and intellectual property attorney Rich Gray said PeopleSoft's and Oracle's combined applications businesses would probably not be considered an illegal monopoly.

"You've got the established big player SAP," which according to Gartner has 46 percent of the enterprise application market, "and the up-and-coming company, Microsoft, which desires to be a business applications player," said Gray, referring to the Seattle software maker's recent releases of applications for small- and mid-size businesses.

Speaking on a conference call with analysts Thursday, Ellison derided PeopleSoft's monopoly claim.

"A year ago, (PeopleSoft CEO Craig) Conway approached me with the idea of combining the Oracle applications business with the PeopleSoft applications business . . ." Ellison said. "Now, a little while later, Mr. Conway suddenly sees that a combination of the PeopleSoft business and the Oracle applications business creates antitrust issues?"

In a separate call with analysts, Conway confirmed having approached Ellison about such a deal last year.

Conway also confirmed that PeopleSoft is moving ahead with its plan to merge with J.D. Edwards.

Shares of PeopleSoft fell 1.4 percent to close at $17.37 Thursday. Shares of Oracle closed at $13.33, down less than 1 percent. Shares of J.D. Edwards closed at $13.36, up less than 1 percent.

E-mail Carrie Kirby at ckirby@sfchronicle.com.

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