Oracle Trial Reveals Surprise

SAN FRANCISCO -- Oracle on Monday defended its $7.7 billion hostile takeover bid for rival business-applications software maker PeopleSoft by revealing in a federal court that Microsoft had tried to buy SAP, the No. 1 company in that market.

The surprising disclosure by Oracle attorney Daniel Wall provided a dramatic opening for the antitrust trial, which pits one of Silicon Valley's brashest companies against federal and state regulators who charge that an Oracle-PeopleSoft merger would lead to higher prices and fewer choices for customers.

Wall said Microsoft began its pursuit of Germany's SAP last June, the day after Redwood City, California-based Oracle announced its unsolicited bid for PeopleSoft. He said the move showed how quickly the business software market can adjust to new conditions.

Microsoft confirmed in a statement Monday that it had held preliminary talks to buy SAP. Microsoft said the effort ended months ago because of the complexity of such a deal, which would have been by far the largest in the history of the software behemoth. SAP confirmed Microsoft's version of events in a separate statement.

Wall also argued that regulators at the U.S. Justice Department had defined the market too narrowly in its antitrust lawsuit against Oracle. The regulators are trying to block Oracle's bid on the grounds that it would shrink from three to two the number of top providers of software for financial tasks, such as accounting, and for managing employee functions, such as payroll.

"The way they are defining the market, they might block us from buying PeopleSoft, but let Microsoft buy SAP," said Oracle spokesman Jim Finn. "It's insane."

Deputy Assistant Attorney General Thomas Barnett said it was not clear a Microsoft-SAP deal would have been permitted.

"It's something we'd obviously look at," Barnett said after the first day of arguments and testimony in what is expected to be a monthlong trial.

The disclosure overshadowed the rest of the proceedings before U.S. District Judge Vaughn Walker, a former antitrust lawyer who will decide the case without the aid of a jury.

The case is the biggest test for antitrust regulation of the software industry since the Justice Department sued Microsoft -- and that suit was already echoing through the 17th-floor courtroom before the SAP disclosure.

PeopleSoft is relying on attorney Gary Reback, who helped convince the federal government to go after Microsoft, to save it from another powerful software maker. Part of Oracle's defense also resembles Microsoft's: It says that the software industry is more dynamic than the government realizes, and that new entrants can appear with little warning and shake things up.

PeopleSoft is not a party in the case, but its board has rejected four separate Oracle offers and it is clearly siding with the government.

Even if Oracle prevails in court, it must convince a majority of PeopleSoft investors to sell their shares in order to close the deal. Oracle earns most of its money through selling database programs, but has been branching out by selling applications that run on top of those databases.