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Saturday, June 12, 2004 - Page updated at 12:00 A.M.
Some say Oracle's chances improving in antitrust trial
By Michael Liedtke
"More people are starting to think that maybe Oracle has a good case after all," said JMP Securities analyst Patrick Walravens, who has been monitoring the testimony since the San Francisco federal-court trial began earlier this week. "(Oracle) certainly seems to have a better chance of winning than most people thought a week ago."
Before the monthlong trial began Monday, most investors had concluded the U.S. Department of Justice would have little problem proving that an Oracle takeover of PeopleSoft should be blocked to protect customer interests.
This widely held opinion has weighed on PeopleSoft's stock, which dropped by 22 percent between the time the government filed its antitrust lawsuit in late February and the trial's start. The decline mostly reflecting Wall Street's fading hope that PeopleSoft will be acquired at a premium price prompted Oracle to lower its offer from $26 to $21 per share. PeopleSoft has staunchly rejected Oracle's advances.
But investor sentiment started to shift during the past few days as both sides presented their opening statements and the government called eight of its 25 witnesses scheduled to testify.
PeopleSoft's shares gained 8 percent during the trial's first week, closing at $18.75 to nudge the stock closer to Oracle's current bid. Oracle's shares climbed 6 percent this week to close at $11.71. Meanwhile, the tech-laden Nasdaq composite index gained just 1 percent during the week.
Some of the gains in Oracle's stock may have been driven by optimism about the company's upcoming quarterly earnings report, due out Tuesday.
But PeopleSoft's sales outlook hasn't changed, and the company isn't scheduled to release its next earnings report until late July, leaving little doubt the recent run-up is tied to Oracle's encouraging start in the trial, said ThinkEquity Partners analyst Yun Kim.
"As the probability of Oracle winning the case goes up, so will PeopleSoft's stock," Kim said.
With three weeks left in the trial, many twists and turns remain in a complicated legal case, making it difficult to predict the outcome, analysts emphasize. The final decision will be made, probably in August or September, by U.S. District Judge Vaughn Walker, a former antitrust lawyer.
Some analysts, such as Paul Hamerman of Forrester Research, remain convinced that Oracle will lose the case, dooming its PeopleSoft bid. The Justice Department's argument "is more succinct (than Oracle's) and appears reasonable based on our analysis of the market," Hamerman wrote in a report issued Wednesday.
"I think we are clarifying how confusing (the government's) market definition really is," said Daniel Wall, Oracle's lead attorney in the case.
To win, Oracle just needs to raise doubts about the antitrust allegations because the burden of proof rests with the government.
Thomas Barnett, a deputy assistant attorney general for the Justice Department, thinks the government is well on its way to proving Oracle's proposed takeover of PeopleSoft must be stopped to maintain some semblance of competition.
"It's not at all clear that even the current market is perfectly competitive," Barnett said.
The government's case is built on the premise that Oracle, PeopleSoft and Germany's SAP are the only competitors equipped to sell sophisticated accounting and personnel software to large U.S. companies that operate in many industries around the world.
If one of these three major software makers is devoured in a takeover, the government contends, prices are bound to rise while product quality deteriorates, harming some of the nation's most powerful companies.
But the government's lawyers at times have struggled in trying to help Walker understand the narrow "high-function" or "up-market" niche outlined in the case.
The trial has introduced evidence that many sprawling government agencies and large companies, including McGraw-Hill, Wal-Mart and ChevronTexaco, have bought financial-management or human-resources software from other companies besides Oracle, PeopleSoft and SAP.
The Justice Department has argued these examples aren't relevant because large companies and large government agencies sometimes behave like midsized businesses with relatively straightforward technology requirements.
"Big doesn't necessarily mean complex," Barnett said.
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