Saturday, January 31, 2004

Antitrust: The Battle for PeopleSoft

On January 19, the Wall Street Journal’s lead editorial discussed Oracle’s ongoing hostile takeover bid for PeopleSoft. By their very name, hostile takeovers create animosity among rival management factions. But as the Journal’s editorial, “The Oracle of Antitrust”, noted, the real hostility towards the takeover is coming from a party with no direct financial interest in the outcome—the Department of Justice:
Oracle has been laboring to conclude its $7.3 billion hostile takeover bid for software competitor PeopleSoft for about seven months. PeopleSoft hasn’t made things easy, with its lawsuit and its refusal to allow its shareholders to vote on the offer. But the real headache has come courtesy of the Justice Department Antitrust Division, which has been probing the deal with its usual largo tempo and seems to be searching for a reason to say no.

Perhaps [Oracle CEO Larry] Ellison should ask [Microsoft chairman Bill] Gates for advice. Oracle was, after all, one of the leaders of the high-tech tong that invited Justice to make itself at home in Silicon Valley. It didn’t like competing against Microsoft, so it called in the Clinton Administration’s legal hobblers to help. But instead of leaving town after they pounded Microsoft, the lawyers and bureaucrats have settled in and are now looking for new markets to deconstruct.
Antitrust is like any other industry: It must expand into new markets or perish for lack of business. The technology revolution of the 1990s caused an antitrust counter-reformation during the second Clinton and current Bush administration. This is not a partisan product. Republicans and Democrats both support antitrust as a core regulatory principle. President Bush’s FTC has actually been more aggressive in inventing new antitrust markets to control, to the point where a company may be accused of monopolizing the market for its own product.

Technology is particularly vulnerable to antitrust expansion because of its dynamic nature. Antitrust relies on static market analyses; a regulator looks at the current situation and presumes he can predict the future with near-certainty. But technology almost always defies static prognostication. But antitrust regulators need only fool you long enough to get their foot in the door, and once they’re in, they can’t be expelled.

The Journal editorial correctly argues, “No slow-moving regulator can hope to keep up with a technology industry whose definition of long term is 10 minutes.” Many people would dispute that statement, however. Among them is PeopleSoft’s current CEO, Craig Conway, who is trying to thwart the Oracle takeover to save his own job. In a letter to the Journal published January 26, Conway insists “[t]he antitrust issues here are significant”, and that the Journal’s “observation that the Justice Department is simply not capable of understanding the technology industry is also wrong—not to mention patronizing”.

The problem is not that the DOJ is incapable of understanding the market; it’s that they choose not to. In case after case, the DOJ (and FTC) willfully ignores existing market definitions created by businessmen in favor of arbitrary, irrational market definitions created by government lawyers. And what is truly “patronizing” is the notion the DOJ knows how to run the marketplace in any industry, when many government lawyers haven’t spent a day of their lives earning a living in the private sector.

None of this is to say the Oracle-PeopleSoft deal makes good business sense. I don’t consider Oracle’s Ellison to be a virtuous or honest businessman. But it’s hard to support a man like PeopleSoft’s Conway, who went running to the government the minute the market got too unpleasant for him.

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