Antitrust ruling puts PeopleSoft under renewed pressure

With Oracle winning a critical antitrust victory on Thursday, PeopleSoft will find it increasingly difficult to resist its rival's $7.7bn bid, as it has done for more than a year.

Oracle wasted no time putting PeopleSoft under siege after Thursday's decision, sending a letter to the company's board that urged PeopleSoft to accept its latest offer. PeopleSoft responded to the ruling by saying it was weighing up the implications.

"We believe the pressure has increased on PeopleSoft's board to seriously consider Oracle's $21 per share offer and negotiate in good faith," Prudential Financial securities analyst Brent Thill wrote in a research note published after the ruling.

Observers say several scenarios are possible, but a quick or tidy outcome is not expected.

Among Oracle's next hurdles are the potential for an appeal by the US Justice Department and a review of the deal by European regulators. Each of those potential obstacles buys PeopleSoft time to stall the fight, but are unlikely to permanently sideline Oracle's takeover attempt, experts said.

The Justice Department has been "dealt a body blow" by Judge Walker's ruling, said attorney Chris Compton, who heads the antitrust practice at Wilson Sonsini Goodrich & Rosati.

"It will be difficult to appeal because...the judge ruled the DOJ failed on a number of points, not just one," Compton said. "On all the key points the government had to prove, the judge said they didn't prove them."

If that reading is correct, PeopleSoft's main defence against the unwelcome buyout is an anti-takeover provision, or "poison pill". The big question is whether PeopleSoft's board will cling to the poison pill in an effort to keep Oracle away or abandon the provision under mounting pressure from shareholders eager to cash in on Oracle's all-cash offer. If enough shareholders favour the merger, PeopleSoft would be forced to come to the negotiating table - a very likely scenario, observers say.

"I think we'll see the [PeopleSoft] board assess the mood of the big institutional investors," AMR Research analyst Jim Shepherd said. "The board has kind of hung their hat on the notion that this was not a good idea because it was an antitrust violation. Now that they don't have that to lean on they're really in the situation that they have to leave it up to the shareholders."

In addition, PeopleSoft may have a hard time signing up new customers because Oracle is threatening to discontinue PeopleSoft's products after the merger. PeopleSoft's sales have suffered over the past year as a result of such fears and the ruling is only going to intensify that problem, one analyst noted.

"PeopleSoft may find it so difficult to do business in this environment, that they may essentially have to give up the poison pill and let the merger move forward," said Forrester Research analyst Paul Hamerman.

Oracle is fighting to overturn the poison pill in court, but it could help usher help its case by raising the bid, analysts said. The company has raised and lowered the bid several times, and at one time put a $26 per share offer on the table. "A higher bid would facilitate the process - including approval by PeopleSoft's board, the removal of the poison pill, and resolution of a planned jury trial by PeopleSoft against Oracle - and speed the deal's completion," Thill said in his research note.

Alorie Gilbert and Dawn Kawamoto write for CNET News.com