PeopleSoft and JD Edwards deal gets green light

PeopleSoft's $1.7bn acquisition of JD Edwards has been given the green light by federal regulators, who have ruled the merger is not anticompetitive, in a move that looks set to frustrate Oracle's hostile takeover bid.

Oracle, in response to the US Department of Justice decision, said it will still proceed with its hostile bid for PeopleSoft and will extend its deadline for PeopleSoft investors to tender their shares. PeopleSoft shareholders will now have until 15 August to tender their shares, rather than this Friday.

Antitrust experts said the decision by the US DoJ comes as no surprise, given that the companies serve two markets - the high-end and middle market - and that the products of the two companies do not, for the most part, directly compete. PeopleSoft and JD Edwards plan to push forward on closing their deal within the next few days. PeopleSoft's tender offer for JD Edwards shares ends Thursday at midnight.

PeopleSoft CEO Craig Conway said: "The Department of Justice's decision to grant early termination is great news. This is a very important milestone and clears the way for the J.D. Edwards acquisition to be completed."

JD Edwards CEO Bob Dutkowsky was equally pleased.

He said: "Together, PeopleSoft and JD Edwards will set a new standard in serving the needs of enterprise application software customers. The combined company will offer both midsize and large enterprise customers access to the broadest, most open suite of integrated enterprise software applications in the industry."

Oracle's announcement that it still plans to move forward with its hostile $6.3bn cash bid for PeopleSoft resolves lingering questions about whether the software giant would still pursue PeopleSoft if it closed its deal with JD Edwards. Oracle launched its hostile bid for PeopleSoft a few days after PeopleSoft announced plans to acquire J.D. Edwards last month.

Oracle spokesman Jim Finn said: "We are extending our offer for PeopleSoft, and we remain fully committed to acquiring PeopleSoft, with or without JD Edwards."

Oracle has extended its deadline two times. Earlier this month, Oracle extended its deadline from 7 July to 18 July. And at the time, PeopleSoft investors had tendered 34.7 million shares, or less than 11 per cent, to Oracle.

But in the interim, more PeopleSoft investors have tendered their stock, giving Oracle 43.8 million shares, or roughly 14 per cent of its rival's outstanding shares. Oracle needs more than 50 percent of PeopleSoft's shares tendered to demonstrate it has the support of its rival's investor base to do the deal.

Probing for Oracle's thinking on JD Edwards at last week's meeting, financial analysts asked executives if Oracle could possibly prevent the deal or whether it had considered spinning JD Edwards off were it to end up with PeopleSoft. Oracle has "a number of options," Safra Catz, executive vice president, said at that time.

Oracle faces its own federal antitrust investigation in its bid for PeopleSoft, with the DoJ making a second request for information from Oracle last week. That review, which is likely to take several months, could get tougher for Oracle if it has to defend the merits of a three-way merger.

For Oracle, any DoJ challenge to its bid could kill the deal. Companies frequently abandon acquisition plans if the DoJ holds up a deal, rather than go through a lengthy court battle. Acquirers usually avoid a drawn-out court battle because of the lingering uncertainty it creates for both companies.

Attorneys general from approximately 30 states have ramped up their review of Oracle's hostile bid for PeopleSoft, signing confidentiality agreements that will enable them to share information among themselves and other federal agencies.

Howard Morse, a former senior official with the Federal Trade Commission's high-tech antitrust division and now a partner with the law firm Drinker Biddle & Reath said: "This decision shows that the DoJ is looking carefully at the merits of these transactions. Those people who argued this transaction would get a second request, just because the proposed Oracle acquisition of PeopleSoft received a second request, missed the fact that the government does a careful analysis of each deal and on a market-by-market basis."

If the merger of PeopleSoft and JD Edwards goes through, federal antitrust regulators will likely have three companies to review under the Oracle bid, rather than two. But Morse noted this will not delay the DoJ's decision in the Oracle bid, because federal regulators must abide by strict deadlines in making their decision.

Once Oracle submits the requested documents and materials to the DoJ, the federal antitrust agency will have 10 days to inform the software company whether it will challenge its merger proposal or let it go through.

Oracle, however, has the option of giving the DoJ an extension should the regulators need more time.

Shares of all three companies were up during late morning trading. PeopleSoft gained 13 cents, or about 0.73 per cent, to $17.97, while JD Edwards climbed 21 cents, or about 1.44 per cent, to $14.75. Oracle, meanwhile, rose 9 cents, or about 0.70 per cent, to $12.93.

Alorie Gilbert and Dawn Kawamoto write for CNET News.com