EC Approves Oracle's Hostile Takeover Of PeopleSoft

by Ulrika Lomas, for LawAndTax-News.com, Brussels

28 October 2004

The European Commission announced on Tuesday that it has cleared business software manufacturer Oracle's planned hostile takeover of smaller rival, PeopleSoft.

This follows the dismissal by the courts earlier this year of antitrust concerns regarding the merger which were expressed by the US Department of Justice.

In a statement, the EC explained that detailed investigation had established that there are separate markets for “high-function” HR (human resources) and FMS (financial planning and reporting) software purchased by large and complex enterprises which require high standards of performance and support.

This market is known in the industry as “enterprise software” or “tier-one software” and is different from so-called “mid-market” software. The Commission also established that the markets are world-wide in scope.

The Commission suggested that:

"Even though the proposed merger reduced the number of big players from three to two, with (German business software provider) SAP remaining the largest player in the sector and the relevant markets, the markets would remain competitive," and concluded:

"Typically customers invite various vendors to bid for “enterprise software” projects (both FMS and HR) and evidence shows that other vendors such as Lawson, IFS, Intentia and QAD have won bids for large and complex enterprises in competition with Oracle, PeopleSoft and SAP. Also Microsoft, a recent vendor of business application software and still perceived mainly as a mid-market player, managed occasionally to win bids in the “enterprise” space and appears to pose a competition constraint in this market."

Although all of the regulatory hurdles have now been cleared, Oracle must still tackle PeopleSoft's "poison pill" anti-takeover provisions, which would be triggered if a certain percentage of shares is acquired by any one bidder, and would raise the takeover price to a prohibitive level.

However, observers have suggested that should Oracle raise its offer price to a level acceptable to PeopleSoft, the latter might remove the measures, allowing a merger to proceed on a friendly basis.

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