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October 1, 2004

Oracle (Quote, Chart) advanced its plans to acquire PeopleSoft Friday after the U.S. Department of Justice said it would not appeal a ruling on an antitrust case that tried to block the merger.

The news came on the same day of PeopleSoft’s (Quote, Chart) stunning announcement that the company’s board of directors fired CEO Craig Conway and replaced him with company founder and Chairman Dave Duffield.

R. Hewitt Pate, Assistant Attorney General in charge of the Department’s Antitrust Division, said he was disappointed with a ruling that the merger should be allowed to proceed, saying he felt the government made its antitrust case against the merger.

The government’s case tried to prove that the $7.7 billion hostile takeover of PeopleSoft would limit customer choices in the enterprise software market to just Oracle and market leader SAP AG (Quote, Chart) and create a monopoly in the ERP sector. Those tools include Human Resource Management and Financial Management Services.

Throughout the trial, U.S. District Court Judge Vaughn R. Walker questioned the DoJ’s position while analysts criticized the government for oversimplifying the definition of top-tier and mid-tier ERP players.

Oracle Chairman Jeff Henley enthusiastically responded to the DoJ’s action but stopped shy of raising the company’s current tender offer of $21 per share or $7.7 billion.

“This affirms our longstanding belief that the transaction is not anti-competitive,” Henley said in a statement. “We are now looking forward to the trial in Delaware of our claims against the PeopleSoft board of directors for their actions over the past year which have seriously damaged, and continue to damage, shareholder value.”

Henly was referring to a trial that starts Monday over PeopleSoft’s Customer Assurance Program (CAP), which guarantees that customers receive up to five times their money back if Oracle takes control of PeopleSoft.

In its pre-trial paperwork, Oracle claims that Conway enforced the CAP without the board’s consent.

PeopleSoft also battled back in a statement about the DoJ’s decision.

“The Board of Directors will meet in due course to review the implications of today’s announcement,” the company said in a statement Friday. “PeopleSoft’s Board has carefully considered and unanimously rejected each of Oracle’s offers, including its current offer of $21.00 per share.

Back in May, PeopleSoft’s Board characterized the current offer as “inadequate to the real value of PeopleSoft’s value.”

Ken Marlin, managing partner of New York-based Marlin & Associates, a mergers and acquisitions investment bank focused on media and technology, has been extremely confident that Oracle would succeed in its move to snatch PeopleSoft from its position in the lucrative market.

“This is the end of an independent PeopleSoft,” Marlin told internetnews.com. “Now that the anti-trust matter has been disposed of, it is clearly time for the two companies to sit down and discuss price. Clearly, Craig Conway was not the one to lead those discussions. We expect the PeopleSoft board to appoint a committee to sit down and negotiate a deal with Oracle.”

Even if it manages to remove PeopleSoft’s CAP refund, Oracle’s pursuit has other major hurdles to face, including a pending antitrust investigation by overseas regulators with the European Commission, a so-called “poison pill” in PeopleSoft’s by-laws and even a proxy war if PeopleSoft’s Board of Directors do not meet eye to eye with investors.

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