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It’s the elephant across the ocean. It was virtually forgotten in the frenzy surrounding the opening of the Justice Department’s trial to block Oracle Corp.’s proposed merger with PeopleSoft Inc. But even if Oracle wins, it still has to pass muster with the European Commission (E.C.). No one was talking about that in San Francisco last week. There was talk about Microsoft’s acknowledgment, just before the trial, that it had discussed acquiring the German software giant SAP A.G. last year. Commentators were also buzzing after Vaughn Walker, the San Francisco judge who is presiding over the bench trial, interrupted the government’s opening statement with frequent questions expressing skepticism. U.S. v. Oracle, No. 04-0807 (N.D. Calif.). But no one seemed to be thinking about the E.C., which issued a “statement of objections” to the merger in March and, even if Oracle wins in San Francisco, will still have the last word. That fact alone is why some observers wonder whether Oracle truly wants to acquire its competitor in the so-called back office market of software used by large corporations for human resources, accounting and the like�or merely wishes to create uncertainty that will hurt PeopleSoft’s business and thus help its own. PeopleSoft’s chief executive, Craig Conway, was not talking to the press last week, but he told the San Francisco Chronicle in February: “You don’t have to actually acquire a company to run it out of business.” Oracle declined to comment. The government claims that the merger would violate the Clayton Act, which outlaws monopolistic business practices. It says that Oracle, PeopleSoft and SAP are the only three vendors that service the market, and a merger would damage competition. Oracle argues that the field extends beyond three companies. The debate has been fast and furious, but on this virtually everyone agrees: Oracle will not be able to complete the merger if it wins at trial but not at the E.C. “Frankly, it’s just not practical,” said Brackett Denniston, general counsel of General Electric Co., speaking of the possibility that an international business would attempt such an undertaking. GE had its own high-profile acquisition of Honeywell International Inc. scuttled by the European Commission three years ago, and that was after U.S. officials not only approved the transaction but lobbied on GE’s behalf. Even if a company doesn’t manufacture in Europe, he said, “the mere fact that you’re selling there is what makes separation impossible.” What makes the Oracle effort unprecedented, said Laurence Popofsky, a partner in the San Francisco office of Heller Ehrman White & McAuliffe, is that the company is pursuing a hostile merger-in the face of opposition on both sides of the Atlantic-all the way to trial. In the wake of the GE-Honeywell failure, Popofsky said, U.S. and European regulators have tried to coordinate to avoid such clashes. If Oracle wins the trial, he expects the E.C. will feel pressure. “It would be daunting, or even presumptuous, for the commission to take a different view of the relevant commerce,” he said. “GE had no trial record, and even that produced a great deal of friction. The friction would be even worse if the merger were blessed in the U.S. and challenged by the commission.” Some observers were surprised when SAP, the leading provider of this software, announced that it supported Oracle. But Jim Shepherd, a vice president at AMR Research, said most technology companies prefer hands-off regu- lation. “Potentially this has a negative impact on everybody,” he said, “because you can block any acquisition or merger.” A decision from the E.C. was initially due in May, but the commission stopped the clock when it requested additional information from Oracle. A decision will be due about six weeks after it restarts. The trial is expected to last a month. Depending upon how long Walker takes to rule, it’s still possible the E.C. decision will come first. If the E.C. rules against Oracle, the company can appeal and, under the commission’s newly expedited procedures, go to trial within nine months, according to a former E.C. official. “On the whole,” said Jonathan Baker, a professor at American University Washington College of Law, “differences in outcome between Europeans and U.S. enforcement agencies are less common than you might guess from the press.”

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