DoJ's antitrust lawyers move to block Oracle PeopleSoft bid

Antitrust division lawyers at the US Justice Department are recommending that the department file suit to block Oracle's acquisition of PeopleSoft, indicating that Oracle may face a serious setback in its embattled bid for its rival.

The Justice Department informed PeopleSoft of the staff's recommendation late on Tuesday, and said that the agency will make a final ruling no later than 2 March, PeopleSoft said. Staff recommendations on antitrust cases usually provide an early indication as to the direction in which the department is likely to lean in its final decision.

Oracle spokesman Jim Finn refused to confirm whether the company had any knowledge of a staff decision. "While no decision has yet been made, Oracle believes this merger will eventually be approved," Finn said in a statement.

Oracle chief executive Larry Ellison said months ago that an unfavourable decision from the Justice Department would put an end to the bid for his rival. But more recently, Ellison told USA Today that he would be willing to challenge the Justice Department if it ruled against Oracle.

Oracle's $9.4bn buyout offer hinges on the Justice Department's decision. The department began an extended review of the deal in June after PeopleSoft and several states said the deal was anticompetitive. PeopleSoft and Oracle are the second and third largest suppliers of application software for businesses, respectively. The largest is Germany-based SAP.

PeopleSoft argues that an Oracle-PeopleSoft combination would leave too few competitors in the market for broad suites of software designed to automate accounting, human resources and manufacturing for the world's largest corporations. It claims prices would rise as a result. Oracle counters that the business applications market has too many rivals, including the formidable competitor Microsoft, which entered the market a couple of years ago.

Justice Department officials were not immediately available for comment.

The announcement comes after months of speculation over whether the Justice Department would allow Oracle's takeover bid to proceed, or challenge it.

But the final outcome will not be known for possibly several weeks, as the case winds its way through the upper ranks of the Department of Justice's antitrust unit and Oracle makes its pitch in favour of the deal each step along the way, said attorneys who specialise in antitrust cases.

The final decision rests with Hewitt Pate, the Justice Department assistant attorney general who oversees the antitrust unit. Historically, the assistant attorney general has followed the recommendations of its staff.

Should Pate favour his staff's recommendations, the agency will file an injunction to block the deal in federal court. Oracle would then have to fight the Justice Department's decision in federal court.

Oracle attorneys expressed optimism, pointing out that the staff recommendation was not the final department decision.

"The decision on Oracle's merger will be made by the assistant attorney general with the assistance and advice of his staff and deputies. It will take into account not only the recommendation of the investigating staff, which we understand was forwarded to the assistant attorney general today, but also facts and arguments presented to senior division decision makers by the merging parties," James Rill, an attorney with Howrey, Simon, Arnold & White and Oracle's antitrust attorney, said in a statement.

Rill, who once served as an assistant attorney general for three years, said he has seen several cases where the assistant attorney general's decision differed from its staff recommendation when he worked at the agency.

The Justice Department has also been working with the state attorneys general of 38 states, as well as the Canadian Competition Bureau and European Commission, in sharing information and updates, said a source familiar with the investigations.

The European Commission, the antitrust regulatory body of the European Union, formally began its review of the deal in mid-October, but announced last month it put its review on hold pending more information from Oracle.

Oracle raised the stakes of the deal last week by raising its tender offer to $26 a share from $19.50 a share, the second time it sweetened the deal since its initial bid last June. The company has also launched a proxy battle for control of PeopleSoft's board. Half of PeopleSoft's directors are up for re-election at a 25 March shareholder meeting and Oracle seeks to replace them with its own nominees.

Alorie Gilbert and Dawn Kawamoto write for CNET News.com