On the Edge
Oracle and PeopleSoft
Oracle Corporation makes extremely complicated and large customized
software programs that can support thousands of simultaneous users
and that are capable of administering the personnel records and
financial records of very large businesses (called enterprise
software). PeopleSoft and SAP were the only two other major
competitors making such massive enterprise software. Oracle held 18
percent of the market in customized software capable of handling
the personnel records of very large businesses, SAP held 29
percent, and PeopleSoft held 51.5 percent. Moreover, Oracle held 17
percent, SAP held 39 percent, and PeopleSoft held 31 percent of the
market for customized software capable of managing the financial
records of very large businesses. On June 6, 2003, Oracle attempted
a hostile takeover of PeopleSoft by offering to buy PeopleSoft’s
shares for $5.1 billion, or $16 a share. PeopleSoft’s board of
directors rejected Oracle’s offer, and on June 18 Oracle raised its
bid to $6.3 billion, or $19.50 per share. Then, on February 4,
2004, Oracle raised its offer to $9.4 billion, or $26 per share.
PeopleSoft stock was by then selling for $22 a share, and its board
rejected the new offer. PeopleSoft also passed a “poison pill”
provision by promising customers cash refunds of up to five times
what they paid for their software if PeopleSoft were taken over by
another company.
On February 26, 2004, the U.S. Department of Justice (DOJ) sued to
block Oracle’s bid, claiming the takeover would reduce the market’s
competitors from three to two and “such a reduction in competition
is likely to result in higher prices, less innovation, and
decreased support” for large business customers. Oracle challenged
the government’s definition of the “enterprise software market” as
too narrow and asserted that if the market was defined as the
market for all “business software,” then there were many dozens of
companies competing in the market and not just three. Moreover,
Oracle claimed, large companies such as Microsoft planned to enter
the enterprise software market, and, anyway, large customers could
negotiate low prices even when there were only two competing
sellers in a market. On September 9, 2004, the court ruled in
Oracle’s favor against the DOJ, and Oracle shortly acquired
PeopleSoft.
a. Does an Oracle takeover of Peoplesoft leave the market too concentrated?
b. Do large companies do more good than bad?
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