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Winners and Losers in the Oracle Case

September 13, 2004
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There could be more consolidation of software companies and a boost in business for workforce management consolidation firms as the result of a federal court decision that favored Oracle Corp. in a closely watched antitrust case that grew out of its attempted takeover of PeopleSoft Inc.

The recent ruling went against the U.S. Department of Justice. But the big loser could be PeopleSoft, which is now back in play as a takeover target. Even if it ultimately fends off Oracle, the case could be costly to PeopleSoft in legal fees and the potential for lost business.

Paul Hammerman, a vice president at Forrester Research, says that third-party support vendors already have begun to emerge to compete for a share of PeopleSoft’s software-maintenance market. And the German software firm SAP "will continue to benefit from the takeover battle," he says in an e-mail. The ruling could also figure in future software cases. "The case sets a precedent that anti-competitive effects are hard to prove for differentiated software product lines," Hammerman says.

The government argued that the market for complex enterprise resource planning software would be whittled down to two chief players--Oracle and SAP--if PeopleSoft were swallowed up.

But U.S. District Court Judge Vaughn Walker said the government had not proven that the merger of Oracle and PeopleSoft "is likely substantially to lessen competition." Walker noted that the field is rich with competitors. He cited Lawson, Microsoft and American Management Systems, which is now part of the Canadian firm CGI. The judge also noted the existence of such best-of-breed vendors as Siebel, and pointed to the large number of outsourcing firms, including Accenture, Fidelity, Exult, Hewitt and Aon that are ready to handle such company functions as payroll, benefits and pension management.

PeopleSoft and Oracle both vow to fight on. The Department of Justice might appeal. PeopleSoft still has a "poison pill" provision that would make its takeover prohibitively expensive. The company also is pressing a business-disruption suit against Oracle, asking for $1 billion in compensatory damages, plus punitive damages.

As the software giants slug it out, their marketplace is changing, says Henry Morris, a group vice president with the research firm IDC. He agrees there will be more consolidation. He predicts companies will also find "outsourcing is appealing," and that competition for niche markets will intensify.

Steve Hitzeman, a senior consultant with Watson Wyatt, says it may be too early to tell how it will all shake out. "It’s like a hurricane just sitting out there but not moving in any direction," he says. "Until you see which way the wind is blowing, you don’t know."

--Douglas P. Shuit

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