With that deposition of Oracle CFO Jeff Henley, the Justice Department kicked off the third week of its antitrust case against Oracle and the company's proposed takeover of rival PeopleSoft. Also Monday, federal antitrust regulators expected to call Preston McAfee, a California Institute of Technology professor, to the stand in U.S. District Court here, as well as show a videotaped deposition of Larry Ellison, Oracle's chief executive.
The Justice Department is trying to derail Oracle's bid to buy a reluctant PeopleSoft, a chief rival in the market for software packages that businesses use to manage payroll, human resources and related functions. Antitrust regulators contend that the market would be left without sufficient competition.
In April 2003, the Oracle board was presented with a list of potential acquisition targets. On that list, Lawson and J.D. Edwards were listed as "complementary" midmarket acquisitions for Oracle, according to Henley.
That presentation came roughly three months before PeopleSoft announced its acquisition of J.D. Edwards--which prompted Oracle to announce its hostile takeover bid for PeopleSoft.
Oracle's acquisition list was particularly interesting, given that Oracle has downplayed J.D. Edwards' importance, saying last year it would rather have acquired a PeopleSoft that didn't include J.D. Edwards.
The list of potential acquisition candidates was put together by Oracle's mergers and acquisition group, headed by Safra Catz, Oracle co-president. Catz also spearheaded the PeopleSoft takeover bid.
Henley was asked during his deposition whether a Lawson acquisition was discussed by the board. "I can't remember if we discussed it. I believe we would have at least talked briefly about it," he replied. "I mean, in these meetings, these things trigger a lot of conversation...(so) I'm sure we must have at least mentioned it."
He said he didn't recall where the discussion went. "I just don't remember what degree of discussion we would have had about Lawson," he said. "But we wouldn't have put it in here if we didn't think this was something we should think about."
He added that he didn't know whether there were any discussions between Oracle and Lawson regarding a potential merger.
Henley said acquiring J.D. Edwards would have given Oracle a stronger presence in the applications market. "Again, the theme has been that we felt that getting a stronger presence in the applications space would be useful to us," he explained. "So they were in the applications space, along with Lawson, PeopleSoft, a number of other--Cerner--a number of other companies. So it was really in that spirit that it gives us...a bigger footprint in the applications market."
Industry watchers have repeatedly asked Oracle whether it would be interested in software maker acquiring BEA Systems, too. Oracle has said that in addition to PeopleSoft--or perhaps as an alternative--it has considered acquiring companies in other markets, including BEA.
During late morning testimony, California Institute of Technology professor Preston McAfee discussed competition and pricing strategies used by technology companies in general and Oracle specifically.
McAfee, a Justice Department expert witness who reviewed some Oracle customer discount forms its sales representatives submitted to executives for approval, said Oracle would lower its price by 13 to 26 percent if it knew it was competing against PeopleSoft.
The CalTech professor testified that customers would be paying 5 to 30 percent more for Oracle products if PeopleSoft was not around to offer competing prices.
Customers like GAF Materials, for example, had Oracle's sales staff rushing to get the software maker's top executives to sign off on a discount of up to 85 percent off the list price for Oracle's Professional User E business suite 2003 and other products. GAF Materials was contemplating buying US$6.7 million for software licenses, based on list price, and US$1.5 million for support.
"We're in a head-to-head battle with PeopleSoft. We've been told we have the functional vote, but GAF claims adamantly that they can run their business equally successfully on either PeopleSoft or Oracle," a salesperson wrote in one of the discount request forms. "(PeopleSoft CEO) Craig Conway is calling in to the account to try to delay decision past May 31, and have gotten ultra aggressive on the price and discount to win the business."
On cross-examination, McAfee acknowledged that some of the materials he relied on came from PeopleSoft customers, which could have had a bias.
Oracle is expected to present its case after the Justice Department finishes. The nonjury trial, which began June 7, is expected to last about four weeks.
