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Oracle Corp. meets this week with the U.S. Department of Justice in a last-ditch effort to convince antitrust chief R. Hewitt Pate to let the software giant acquire PeopleSoft Inc. An Oracle spokeswoman confirmed Monday that more face-to-face sessions are planned in the coming days. She declined to detail the topic of the meetings, their timing or the participants. But it is typical for Pate, the assistant attorney general, to meet at least once with the parties in the days before he makes a final decision on whether to challenge a major merger. The Justice Department has pledged to rule on Oracle-PeopleSoft by March 2, though sources indicated the ruling could come late this week. The meetings come as the antitrust community increasingly expects Pate to accept the staff recommendation to challenge the $9.4 billion hostile tender. These experts said the strength of the staff’s case, Pate’s general preference for using the courts to resolve complex antitrust disputes and the perception that Oracle is waging a public relations campaign against the agency all indicate that Pate will oppose the deal. “Oracle is pulling out all the stops, and they are pissing him off,” one antitrust observer said. “They are painting him into a corner where he has to sue.” Despite this view, several antitrust lawyers, including some that expect Justice to block the deal, raised the possibility of last-minute concessions by Oracle that would forgo the need for federal litigation. Oracle has devoted so much attention to PeopleSoft that it is in the company’s interest to arrange a settlement, they contend, while disavowing any inside knowledge of such a compromise. One scenario has Oracle selling parts of its business enterprise suite to an enterprise software firm that now serves midsize companies. Adding Oracle products would help such a firm compete more quickly for up-market corporate customers, ensuring at least two Oracle competitors after the merger. Spokespersons for the Justice Department and Oracle declined to comment. Two starkly different views of the case have emerged in the last week. Legal experts said DOJ staff have built a traditional antitrust case against the Oracle-PeopleSoft deal based on theories of anti-competitive conduct that have been at the forefront of recent merger challenges. The staff asserts that after the merger Oracle could raise prices on enterprise software sold to very large companies. This idea, known as “unilateral effects,” is one of the two theories behind merger challenges. Most unilateral effects cases focus on whether the hypothetical price hike could be implemented across the board. If enough customers would switch to substitute products to make the price hike unprofitable, then the deal does not harm competition. For this case, the staff goes a step further and asserts that Oracle would have the power to price-discriminate. Under this theory, in some industries sellers of a product or service know so much about buyers that they can raise prices for customers that would have the most trouble switching to substitute products. That idea, far from being novel, was at the center of the Justice Department’s case against recent deals between SunGard Data Systems Inc. and Comdisco Inc. and between Univision Communications Inc. and Hispanic Broadcasting Corp. Price discrimination also was the basis for the Federal Trade Commission’s suit against BP plc’s purchase of Atlantic Richfield Co. Justice Department staff contend that the competitive balance resulting from a merger of Oracle and PeopleSoft would affect corporate customers in different ways. Some companies could switch to alternative products in response to higher prices. For others, however, Oracle would have detailed knowledge of how much it would cost the company to convert to a new system and whether there was only one competing product. Oracle could then target these customers for price hikes. Oracle already has some of this power, but price discrimination theory holds that the company’s acquisition of PeopleSoft would exacerbate the situation by leaving only one other business software company, Germany’s SAP AG, as a rival for this business. The alternative view holds that the Justice Department is pushing the price discrimination theory to new limits. Critics, including The Wall Street Journal‘s editorial page, deride the theory as new-fangled and contend it is part of an effort by DOJ to expand the antitrust laws. “If this sounds like an invitation for the government to block any merger it wants to, that’s because it is,” the Journal‘s editorial page said Monday. Antitrust experts supporting this perspective said the Justice Department has devised a test that dooms any merger in markets where sellers bid for business. That’s because the market definition relies on the customers to identify which sellers are in the market. All it would take is one customer to identify the two merging companies as the only bidders for the deal to be illegal. That makes no sense, this group of antitrust experts argues. To buttress its case, Oracle is trying to show that it competes with many other software providers, including Lawson Software Inc. and Siebel Systems Inc. It also argues that Microsoft Corp. is set to enter the market. Such a move would appear to mitigate the risks of the deal given that Microsoft has proven to be a fierce competitor in other markets. But sources said there is little evidence that Microsoft or others intend to move into the big business enterprise software market within the next two years, which is the time period that regulators consider. Rather, the sources said the evidence shows that the Redmond, Wash., software giant intends to serve smaller customers in the next few years and likely will not target big companies for at least five years. One antitrust expert said Microsoft is perceived as such a strong company that evidence of its intent to enter the big business market within two years would have ended the investigation in Oracle’s favor. “The problem is that Microsoft documents must not show entry within two years or the DOJ would have gone away,” the expert said. Copyright �2004 TDD, LLC. All rights reserved.

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