March 1, 2004 2:14 PM PST

Oracle outlines case for antitrust fight

Oracle co-President Charles Phillips on Monday outlined a case for challenging the U.S. Justice Department's lawsuit blocking his company's hostile $9.4 billion bid to buy PeopleSoft.

In his first public comments since the antitrust agency's decision last week, Phillips discussed the case at a meeting in San Diego of former J.D. Edwards customers, the software company PeopleSoft acquired last year.

 Oracle is justified in its desire to buy PeopleSoft, in part, because it faces tough challenges from two major rivals: German software maker SAP and Microsoft, Phillips said. That view contradicts the Justice Department's rationale for blocking the deal. The agency discounted Microsoft as a competitor and said Oracle's acquisition would leave customers with just one other choice of supplier: market leader SAP.

The size and strength of SAP are precisely the reason Oracle seeks to acquire PeopleSoft, Phillips said. Citing market figures from research firm IDC, Phillips said SAP has nearly three times the market share of Oracle and PeopleSoft. Another main reason behind the buyout attempt is Microsoft's entry into the industry. Microsoft has spent billions of dollars on acquisitions to establish its presence in the market.

"To compete, we'll need the economies of scale" that a PeopleSoft buyout would bring, Phillips said. "The market for enterprise applications is highly, highly competitive. Plus, it's a buyer's market; you all know that."

In Oracle's view, the Justice Department focused its inquiry too narrowly on a slow-growth segment of the corporate software market in which Oracle and PeopleSoft compete. That segment, the market for human resource and accounting systems for the world's largest corporation and government entities, is largely saturated, leaving few opportunities to compete for new contracts, Phillips said.

Oracle looks at the market more broadly and includes among its competitors software companies that sell to midsize businesses and service companies that help businesses outsource business systems development. Both information technology outsourcing and software for midsize businesses are widely recognized as two fast-growing, highly competitive markets.


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The Oracle co-president specifically mentioned Lawson Software, SSA and Geac as competitors the Justice Department seemed to overlook in its conclusion that Oracle's acquisition of PeopleSoft would leave only SAP as a viable competitor in the applications software industry.

Phillips laid out only a vague time frame for the court fight to play out. "It's hard to say how long this acquisition and court process will take," he said. "We'll be going to court over the next few months, and we'll see how it goes from there."

Oracle extended its tender offer period to June 25 from March 12. The move to extend it by just a few months after announcing its intention to challenge the ruling may say more about how long the company thinks the court fight may take. Although Oracle has extended the offer in two- and three-month increments numerous times since launching the bid last June, the latest extension shows Oracle still sees resolution just around the corner instead of years away.

As the chief architect of the bid alongside Oracle Chief Executive Larry Ellison, Phillips has much riding on the outcome of this epic corporate clash that started eight months ago and counting. Oracle hired him last May from his former post as the top software analyst at Morgan Stanley. Just weeks later, it launched the PeopleSoft takeover bid.

As Oracle sets out on a new strategy to grow via acquisitions, Phillips brings to the company a deep knowledge of the industry and of competitors' finances. In a vote of confidence, Ellison recently promoted him to co-president along with Oracle long-timer Safra Catz. But if the bid for PeopleSoft fails, it could be a blow to Phillips' standing within the company.

In addition to his industry know-how, Phillips has a gentle manner that provides an antidote to Ellison's alpha-male qualities. That image was on display during Monday's speech to former J.D. Edwards (now PeopleSoft) customers. Phillips reiterated Oracle's commitment to keeping them happy. Specifically, he pledged that Oracle would work cooperatively with rival IBM to support them. J.D. Edwards software is designed to run exclusively on IBM technology, including its iSeries server software and DB2 database program, the latter of which competes directly with Oracle in the database market.

Many have been skeptical about famously hypercompetitive Oracle playing nice with IBM for the sake of customers. However, Phillips promised specifically that Oracle would support IBM iSeries as a computing technology for PeopleSoft customers. "We don't see any scenario to acquire thousands of customers and then take actions to alienate them," Phillips said. "We don't think that's good use of $9.4 billion."

Phillips couched his comments by saying the hostile and prolonged nature of Oracle's bid makes it hard for the company to commit to keeping PeopleSoft's product line and development promises totally intact. That's because Oracle has no access to PeopleSoft's product plans at this critical time of integration with J.D. Edwards, he said.

Phillips' appearance at the J.D. Edwards user conference highlights a recent rift between PeopleSoft and Quest, the group that organizes the event. PeopleSoft originally planned to send its own speakers to address the congregation but canceled the engagements in January after a disagreement over the way Quest is run. For instance, PeopleSoft takes issue with the fact that Quest collects membership fees while PeopleSoft's other 170 user groups are free to its customers. After the split, Quest invited Oracle to speak at the San Diego event.

 

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