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Monday, June 28, 2004
New York Times 6-26-04
Oracle Says PeopleSoft Sought Merger
SAN FRANCISCO, June 25 - The president of the Oracle Corporation testified in federal court on Friday that PeopleSoft initiated talks about a possible merger a year before Oracle made its hostile bid for the company.
The testimony of Safra A. Catz, who has shared the role of president with Charles Phillips since January, came on the 14th day of testimony in the Justice Department's case to block the $7.7 billion takeover.
Government lawyers are trying to show that Oracle competes primarily with PeopleSoft and SAP of Germany to supply software to the world's largest corporations for chores like procurement, customer relations and human resources and that a merger of Oracle and PeopleSoft would reduce competition and therefore lead to higher prices.
Ms. Catz told the court that it had been her idea that Oracle make a hostile takeover bid for PeopleSoft a year ago. But a year before that, in June 2002, Craig Conway, the chief executive of PeopleSoft, personally called Lawrence J. Ellison, Oracle's chief executive, to discuss the possibility of a merger of the companies to better compete against SAP and Siebel Systems Inc., she said.
Within a few days of that phone call, Ms. Catz and Ron Wohl, an Oracle vice president, met with Mr. Conway at a hotel to discuss the merger idea further, she testified. Thomas Rosch, an Oracle lawyer, asked Ms. Catz whether the executives discussed the rationale for a merger at the meeting.
"Yes, getting the two applications together to make them more competitive with Siebel and SAP," Ms. Catz said. Ms. Catz did not offer details as to why discussions between the companies were discontinued.
Renata Hesse, a spokeswoman for the Justice Department, played down the significance of Mr. Conway's initiation of merger discussions in 2002. "This was a very short foray based on some rumors that Oracle wanted to unload its applications business," she said.
Ms. Catz, a former investment banker who oversees Oracle's mergers and acquisitions, also testified that a merger with PeopleSoft would lead to greater efficiencies and a more competitive market and said it would be "ridiculous" to think that it would lead to higher prices.
She said that nearly every large corporation already has software automating human resources and financial management functions and that identifying those few companies still in need of specific programs would be difficult. Raising prices on them would make little sense because Oracle could risk losing them as customers for future sales.
"It's ridiculous," Ms. Catz said. "I don't know how you would do it or why you would bother."
Ms. Catz also provided details of the efficiencies that would result from the merger. By cutting 6,000 jobs and eliminating overlap, the company would save $1.17 billion in the first year, though it would take a one-time charge of $1.3 billion to account for severance costs and other expenses.
In response to questioning from Mr. Rosch, Ms. Catz told the court that Oracle planned to support PeopleSoft's product line for 10 years, though the company did not plan to market it actively.
In his cross-examination, Claude Scott, the lead lawyer for the Justice Department, tried to indicate that Oracle would desert PeopleSoft's customer base if it were to acquire the company.
Critical to the government's argument that competition is limited is establishing that a distinct "high function" enterprise software market exists within the nation's largest corporations. Oracle has argued the market should be defined broadly and that software companies sell the same software programs to both large and midsize companies.
But on Friday, Judge Vaughn Walker expressed frustration that he still had not heard a clear definition of "high function" and asked lawyers to provide a clear definition.
Dan Wall, Oracle's lead lawyer, said that the government faced a difficult task because no such definition exists. "I'm confident we will not come to an agreement," Mr. Wall said. "Our view is that it's a meaningless concept."
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