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 Peoplesofts shares for $ 5.1 billion, or $ 16 a share. Peoplesofts board of directors rejected Oracles offer, and on June 18 Oracle raised its bid to $ 6.3 billion, or $ 19.50 per share, and then on February 4, 2004 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 5 times what they paid for their software if Peoplesoft is taken over by another company. On February 26, 2004, the U. S. Department of Justice ( DOJ) sued to block Oracles bid, claiming the takeover would reduce the markets 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 governments 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 like 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 Oracles favor against the DOJ, and Oracle shortly acquired Peoplesoft.

Does an Oracle takeover of Peoplesoft leave the market too concentrated? Do large companies do more good than bad?