WASHINGTON, July 15 (UPI) -- While "Pirates of the Caribbean" reintroduces us to buccaneers at the box office, it is interesting to note that there are still some pirates left in Silicon Valley, ready to stage high-tech boarding actions. The role of Blackbeard in the latest drama is played by the software giant Oracle. Its potential trophy, the software firm PeopleSoft, may be aided in repelling boarders by antitrust legislation. What makes the situation drip with irony is the fact that the logic of the lawsuits is exactly the same as that which Oracle tried to use to split up its great rival Microsoft. This time, however, the lawsuits may succeed.
PeopleSoft is a software firm that caters in the main to large corporations. Around the end of May it announced a possible merger with the smaller software firm J.D. Edwards, which serves mid-size companies. The deal would have been a stock swap worth $1.8 billion. Four days later, Oracle announced that it was offering $16 a share for PeopleSoft stock, valuing the company at $5.1 billion. The offer reflected a small premium above the then stock price of $15.11.
Wall Street analysts theorized that the hostile bid was a reaction to the proposed merger. Brent Thill of Prudential Securities said, "We think this indicates consolidation as the preferred choice for growth in the current challenging market. We think the timing of the offer was prompted by PeopleSoft's offer to acquire J.D. Edwards." James Mendelson of SoundView Technology Group was more forthright about the perceived strategy: "Given PeopleSoft's modest valuation, and the small premium proposed by Oracle, we believe that Oracle is in a no-lose situation. We believe Oracle is banking on the prospect that no alternative bidder will emerge (we tend to agree with this). If Oracle can buy PeopleSoft at a reasonable price, they substantially increase their market share and eliminate a competitor."
You can almost hear the piratical laughter and the squawking of parrots at the fiendish daring of this bold move. Yet the bid caused two things to happen that were not favorable to Oracle. First, PeopleSoft's stock price jumped, climbing 18 percent on the announcement to $17.82. Oracle was forced to raise its offer to $19.50 a share, raising its total offer by almost a billion dollars.
Secondly, the action has drawn intense interest from antitrust regulators. Because Oracle CEO Larry Ellison has pledged to discontinue PeopleSoft's products if the takeover is successful, observers have not been slow to notice that such an event would leave large companies with a choice of only two providers of major business software -- SAP of Germany or Oracle. The Justice Department has asked for more information about the proposed takeover, often a sign that legal action is pending.
Meanwhile, state attorney generals have also taken up the issue. The state of Connecticut, which has a $100 million contract with PeopleSoft to upgrade its state's computer systems, believes that Oracle would probably take the opportunity to squeeze more money out of the state purse by forcing it to switch to Oracle products. State Attorney General Richard Blumenthal has therefore filed an antitrust suit against Oracle to block the takeover. Blumenthal said, "We are assembling a powerful coalition of states and other consumers that will suffer the same unacceptable costs if this unlawful, anti-competitive takeover is permitted ... Oracle is threatening to force its products on consumers by illegally seizing a key rival and thus amassing market dominance."
If that sort of language sounds familiar, it should be. The massive antitrust lawsuit against Microsoft Corporation alleged that Microsoft was forcing its products on consumers by integrating its various programs, most notably the Internet Explorer web browser, and thereby amassing market dominance. One of the prime movers behind the ultimately failed attack on Microsoft was Oracle.
Yet Oracle has never been particularly consistent on the issue of market dominance. As Competitive Enterprise Institute analyst James V. DeLong remarked at the time of the Microsoft affair, "Oracle ... proudly advertises that 96 percent of web sites run on Oracle software. You want to ask, 'Do your marketing people ever talk to your lawyers?'"
Antitrust laws often create more problems for the free market than they are meant to solve. As a general principle, investors should be free to choose who they want to run the companies they own. Yet there is more than a little irony in seeing antitrust laws deployed against a company that was so keen to see them used to split up a rival against the wishes of the company's owners. If PeopleSoft survives this boarding action (which looks more likely given the antitrust authorities' decision on July 14 to allow its merger with J.D. Edwards to go forward) Oracle may well end up decrying antitrust litigators as scurvy knaves.
