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Oracle, feds tangle over market definition

The company and antitrust regulators are grappling with a key definition that would influence the direction of the government's review of Oracle's bid to merge with rival PeopleSoft.

Oracle and federal antitrust regulators are grappling with a key definition that would influence the direction of the government's review of Oracle's bid to merge with rival PeopleSoft.

A source familiar with talks between the U.S. Department of Justice and Oracle confirmed Friday a dispute over the notion of whether individual customers can be used when defining the business applications software market, rather than groups of customers.

The debate sheds light on sticking points that Oracle is likely to face in its takeover bid for PeopleSoft when the database giant presents its case next week to the antitrust chief for the Justice Department.

Last week, Justice Department staff members informed the companies that it would recommend a challenge to the proposed $9.4 billion merger, according to PeopleSoft. The agency declined to make the recommendation public or to provide details of the decision.

"The (Justice Department staff) is defining the market around each customer, and the courts have rejected that market definition in the past, except when it's been applied to the defense industry, which has only one customer," the source said.

On Friday, The Wall Street Journal reported that Oracle and regulators are at odds over how to define the point at which a market becomes too narrow and thus subject to anticompetitive pressures. Justice Department staffers are claiming that in this case, each individual customer represents its own market, given the size and complexity of the enterprises making the purchases, the newspaper reported.

Oracle and PeopleSoft declined to comment on the report, as did the Justice Department.

The two companies compete in the market for large-scale business software against market leader SAP. A combined Oracle-PeopleSoft would essentially leave just two major vendors for customers to choose from.

Oracle, meanwhile, has been attempting to show that the business applications market is more competitive than that. The greater the competition, the less likely it would be for the Justice Department to block the PeopleSoft merger on antitrust grounds.

Last year, for instance, Oracle substantially changed the way it defines the competitive landscape to show a more fragmented and more wide open market.

In its annual reports to the Securities and Exchange Commission dating back to 2000, Oracle has outlined its view of the business applications software market. Its list of competitors remained largely the same in 2000, 2001 and 2002.

"In the business applications software market, competitors include J.D. Edwards, PeopleSoft Inc., and SAP Aktiengeschellschaft," Oracle stated in its SEC filing in 2000. The list of business application competitors remained the same in 2001, with the addition of Siebel in 2002 and removal of J.D. Edwards.

But in 2003, when Oracle filed its annual report 18 days after it announced its hostile takeover bid for PeopleSoft, Oracle stated: "In the highly fragmented applications market, we compete against Microsoft, PeopleSoft Inc., SAP Aktiengesellschaft Systeme, Siebel Systems Inc., and many other application providers, as well as outsourced and in-house solutions for customers."

The source familiar with the case said that the change is not all that unusual.

"People update their 10Ks (annual reports to the SEC) all the time to reflect changes in their market, or maybe the past years were not as descriptive," said the source.