News Release
No. 149/04
October 26, 2004
COMMISSION CLEARS ORACLE'S TAKEOVER BID FOR PEOPLESOFT
The European Commission has granted approval for Oracle
Corporation's proposed acquisition of PeopleSoft, Inc., two rival makers of
software applications for businesses. After a detailed probe, the Commission has
concluded that there is an absence of sufficient evidence of competitive harm,
especially in view of the fact that large and complex companies (often with multinational
activities) that use the software to automate their financial management systems
and their human resource processes have other suppliers to serve their needs beside
Oracle, PeopleSoft and SAP AG.
In June 2003 Oracle, the world's second largest software company launched
a hostile bid for software rival PeopleSoft. The transaction was notified in Europe
in October 2003 under the Merger
Regulation, whilst also being subject to scrutiny by the US Department of
Justice.
Enterprise application software allows corporations to automate and manage
some critical business functions such as financial planning and reporting (FMS),
human resources processes (HR), relationships with customers and supply chain
management. FMS and HR applications are critical to large and complex corporations
with a multinational scope.
The Commission's detailed investigation established that there are separate
markets for "high-function" HR and FMS software purchased by large and
complex enterprises which require high standards of performance and support. This
market is known in the industry as "enterprise software" or "tier-one
software" and is different from so-called "mid-market" software.
The Commission also established that the markets are worldwide in scope.
The Commission concluded that even though the proposed merger reduced the
number of big players from three to two, with SAP remaining the largest player
in the sector and the relevant markets, the markets would remain competitive.
Typically customers invite various vendors to bid for "enterprise software"
projects (both FMS and HR), and evidence shows that other vendors such as Lawson,
IFS, Intentia and QAD have won bids for large and complex enterprises in competition
with Oracle, PeopleSoft and SAP. Also Microsoft, a recent vendor of business application
software and still perceived mainly as a mid-market player, managed occasionally
to win bids in the "enterprise" space and appears to pose a competition
constraint in this market.
The Commission reached this conclusion after analysing hundreds of HR and
FMS bids launched by large and complex enterprises over the last couple of years.
The Commission also carried out various econometric tests with this data which
revealed that Oracle's bidding behaviour was not particularly affected by the
specific identity of the rival bidders in the final rounds of a given bidding
contest, i.e., the presence of PeopleSoft or SAP as rival did not necessarily
give rise to more aggressive discounting compared to Oracle's behaviour vis-à-vis
other bidders.
The heterogeneity of the products, the asymmetries in the market shares of
the different players and the lack of price transparency also rendered coordinated
effects implausible in the industry.
The Commission conducted its investigation in close cooperation with the antitrust
division of the US Department of Justice. It also took into account evidence that
became available during the US trial in the US District Court of Northern California.
