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Europe blesses Oracle-PeopleSoft union

Big companies have "other suppliers to serve their needs besides Oracle, PeopleSoft and SAP," regulators say.

European antitrust regulators ruled Tuesday that Oracle can proceed with its hostile takeover bid for PeopleSoft, clearing the last regulatory hurdle in the protracted and sometimes tumultuous battle.

The European Commission's decision to permit the deal to move forward had largely been expected. European antitrust regulators appeared to be weighing issues similar to those mulled by U.S. regulators, who recently lost a battle in U.S. District Court to block the deal.

The Commission determined that the enterprise software applications markets is a worldwide market, the panel said in a statement, saying that even with the elimination of one of the three largest players through an Oracle-PeopleSoft merger, the market will remain competitive.

SAP, the industry's largest player, will continue to help ensure a competitive landscape, the panel said.

"After a detailed probe," the EC said in its statement, "the EC has concluded that there is an absence of sufficient evidence of competitive harm, especially in view of the fact that large and complex companies, often with multinational activities, (which) use the software to automate their financial management systems and their human resource processes have other suppliers to serve their needs besides Oracle, PeopleSoft and SAP."

Oracle declined to comment on the decision.

PeopleSoft said in a statement that its board of directors will "review in due course the implications of today's decision by the European Commission."

"PeopleSoft's board has carefully considered and unanimously rejected each of Oracle's offers, including its current offer of $21 a share," the statement says in part. "On May 25, the board concluded that the current offer was inadequate and did not reflect PeopleSoft's real value."

The Commission noted that in making its decision, it took into account evidence such as the bidder information that was presented during the Justice Department's trial against Oracle.


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European regulators pointed to software vendors and resellers, such as IFS, Intentia, Lawson and QAD as having won enterprise applications software bids when pitted against Oracle, PeopleSoft and SAP.

Additionally, the Commission noted that Microsoft, while currently focused on the midmarket, has also occasionally won bids for enterprise software accounts.

"The Commission reached this conclusion after analyzing hundreds of (human relations) and (financial planning and reporting software) bids launched by large and complex enterprises over the last couple of years," the EC's statement said. "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, (for example), the presence of PeopleSoft or SAP."

The timing of the ruling is not a surprise. Mario Monti, the outgoing EC competition commissioner, had previously said he had hoped to make a decision on the matter before his five-year term with the Commission expires Sunday.

With the last regulatory obstacle out of the way, Oracle needs to find a way around PeopleSoft's "poison pill" antitakeover measures if it's to succeed with its $7.7 billion bid.

The measures, which Oracle has been fighting in Delaware Chancery Court, would trigger the release of more stock if a would-be buyer acquires more than a certain percentage of shares, suddenly raising the takeover price to a prohibitive level. The targeted company can waive the pill option at any point and transform the hostile offer into a friendly one, which Oracle hopes PeopleSoft will do. In general, board members who have gone this route have usually done so after being offered an acceptable price. Shareholders can also elect a new board that's more amenable to a deal.

Oracle's cash offer of $21 is still on the table, even though PeopleSoft's directors have rejected it. Early Tuesday, PeopleSoft's stock was trading nearly that high, at $20.02 a share. Over the past three months, the shares have risen sharply from $15.97 on Aug. 6.

An agreement on the way?
PeopleSoft's board showed signs of a softer attitude toward the takeover during the Delaware Chancery Court trial earlier this month. PeopleSoft has also fired Craig Conway as chief executive and appointed Chairman Dave Duffield to the CEO spot.

During courtroom testimony, Steven Goldby, a PeopleSoft director, said the merger was all about the price tag. "If there had been...and if there ever is an indication that Oracle is willing to pay what we consider to be the right price for the shareholders...and there is a high certainty of being able to close a transaction quickly, I personally would be open to discussions with Oracle."

Oracle has repeatedly said it does not plan to "overpay" for PeopleSoft. And during the Delaware trial, Oracle CEO Larry Ellison stressed that point. Ellison said that Oracle's board has talked about lowering its bid more often than raising it.

But proxy solicitors say it's unlikely PeopleSoft's board will accept $21 a share or less.

"I can't see PeopleSoft's board suddenly embracing a bid at $21, when nothing has changed," said Tom Ball, a proxy solicitor with Morrow & Co., in a recent interview. "The directors will have to find something compelling to change their mind, like a higher bid. They aren't going to accept something they can't support or back up."