PeopleSoft and Oracle: The Antitrust Dogs Turn
It was only a couple of years ago that Larry Ellison, the
charismatic CEO of Oracle Corp., was urging the dogs of antitrust
to chase down Bill Gates and Microsoft. How things have changed.
Somewhere along the way, the pups got loose and turned on him. Now
Oracle itself may wind up feeling the antitrust bite.
At issue is Oracle's effort to acquire PeopleSoft, a competing
supplier of business software -- a move Justice Department
staff members recently said they oppose.
Last June, Oracle put in a $5.1 billion bid for the company (since
rising to $9.4 billion earlier this month.) The PeopleSoft board
rejected the offer, setting off a classic takeover battle. The
storyline was a simple one and one familiar to Ellison: a large,
octopus-like software company versus a plucky rival fighting to
A climactic PeopleSoft shareholder meeting to vote on Oracle's
offer is set for late March. PeopleSoft's board adamantly opposes
the acquisition and is urging shareholders to reject it. But even
if shareholders approve, the deal must get past a pack of antitrust
authorities, as state, federal, European and even Canadian
regulators are investigating the takeover attempt. A federal
decision may come within a few weeks. Things look bad for Oracle,
with rumors flying that the Justice Department may file suit to
block the acquisition.
The question for U.S. antitrust regulators is whether the merger
would substantially lessen competition in the relevant market. But
what exactly is the relevant market here? The bulk of Oracle's
business is in databases, but PeopleSoft doesn't play in that
field. The two do, however, go head-to-head in a lower-profile
market known in the software industry as "ERP," -- "enterprise
resource planning." Essentially, this is the provision of software
to help businesses with such things as inventory, customer service
and human resources.
As it turns out, neither Oracle nor PeopleSoft dominate this
market. The leader is a German firm, SAP, which by one measure has
25 percent of that market. Oracle and PeopleSoft have around 7
percent each. Rather than reduce competition, combining the latter
two could actually increase competition to SAP (a point that
European authorities, who have been known to use competition laws
to help local favorites, are unlikely to miss).
To get around inconvenient market-share numbers, some critics of
the acquisition have urged a bit of market gerrymandering. Instead
of looking at the whole ERP market, regulators would look at
smaller fields such as inventory software, human resource software
and the like. Then, looking specifically at parts of those market
segments involving the largest firms -- those in the Fortune 1000
-- Oracle and PeopleSoft would appear dominant.
It seems pretty unlikely, though, that such artificially defined
markets would tell you anything about competition. After all, ERP
sub-markets, such as finance or inventory, involve similar
expertise and resources. Dominating one may not mean much since
providers in one can fairly easily offer others.
At the same time, the customers in these sub-markets are, by
definition, the largest in the country. We're talking Generals
Electric and Motors, firms unlikely to be pushed around.
However the market is sliced, it's unlikely that competition will
be threatened. For one thing, the whole business of selling
enterprise software is being challenged. Companies such as
salesforce.com are providing businesses with on-line services
instead of software. Other companies simply provide the services on
an outsource basis.
And there's an elephant-in-the-living-room that's been overlooked
so far: Microsoft, which has announced plans to pour billions into
enterprise application software. Yes, customers may witness a
head-to-head battle between Bill Gates and Larry Ellison. The
competition, of course, promises to be intense.
Nevertheless, antitrust regulators may still stop the PeopleSoft
acquisition. One is tempted not to feel too sorry for Oracle, as it
was the first to set the hounds loose. Yet the real losers would be
consumers, who would enjoy a slightly less efficient, slightly less
vibrant, software industry.
Distributed nationally on the Knight-Ridder Tribune Business Wire.