Ellison's defining moment

COMMENTARY--Capping his company's four-week trial against the Justice Department, Oracle CEO Larry Ellison's masterful testimony on Thursday convincingly laid out the legal case for why Oracle should be allowed to be a cold-hearted acquirer. For the most part, the cultural aspects of Oracle's hostile $7.7 billion bid for PeopleSoft have overshadowed the technical realities of the deal.

Oracle has earned a reputation for aggressive--some say ruthless--behavior. If it takes over PeopleSoft, it will fire most of the company's 8,000 employees. And official protestations notwithstanding, it's clear Oracle will compel PeopleSoft customers to go on a migration path they'd rather not take.

		Special coverage Oracle's day in court See our full coverage of the landmark Oracle-DOJ trial.

PeopleSoft, on the other hand, was the feel-good company founded by notable animal lover and philanthropist David Duffield. To further spice up the script, PeopleSoft got turned around after Duffield's departure, by Craig Conway--a former Oracle executive. There was certainly no love lost between Conway and Ellison, who took turns sniping at each other in the early days of the takeover battle.

Perhaps not surprisingly, a lot of people in the technology industry would like to see U.S. District Judge Vaughn Walker rule in favor of the Justice Department's challenge to the takeover. That could still happen, but Oracle definitely did all it could to win in court and outside.

Initially, Oracle did not appear serious about buying PeopleSoft. Rather, the bid was widely viewed as an attempt to create turmoil for a rival at little cost to Oracle. That's a scenario Oracle has definitively put to rest. As Ellison told Justice Department attorney Claude Scott under cross-examination, "From my point of view, there are no benefits if we don't get PeopleSoft. We will have wasted a tremendous amount of money and time. It would be a very bad mistake."

Although Ellison has the reputation for speaking off the cuff in public appearances, often making outrageous remarks, in court he was cool and unflappable.

Oracle's legal team, with a generous assist from star performer Ellison, appeared to do a compelling job of establishing that the enterprise software market is ripe for consolidation and that Oracle's takeover of PeopleSoft is logical and lawful. "We wanted to be a survivor and a consolidator, and we felt the only way to survive and prosper was through acquisition," he said.

The business applications industry is squeezed by the demands of customers for better software at lower prices, Ellison explained to a packed federal courthouse. The only way to accomplish that is to spread costs out over a larger installed base, which entails gobbling up a competitor. Although Oracle considered other options, PeopleSoft emerged as the preferred target.

"Hey, it was his idea..."
Ironically, Conway himself planted the seed by approaching Oracle in mid-2002 with a proposition: combine our respective applications businesses. "I let Craig know we were supportive of putting the companies together, but the devil was in the details," Ellison said. One pesky detail proved the tripping point: neither Conway nor Ellison was willing to let the other run the new company. Ellison insisted that Oracle run the entity under his leadership because "we would be the majority owner."

A year later, when PeopleSoft moved to buy smaller competitor J.D. Edwards, vaulting it past Oracle in the applications space, Ellison and team struck back with the PeopleSoft bid. "Now would be the time to launch on PSFT," Oracle President Safra Catz e-mailed Ellison in a document reproduced in court. "Just what I was thinking," Ellison responded.

Although Ellison has the reputation for speaking off the cuff in public appearances, often making outrageous remarks, in court he was cool and unflappable. Pressed by Scott to agree that innovation would suffer as a result of PeopleSoft's disappearance, Ellison suggested that his cross-examiner was on another planet.

"In the world I live in, we are facing increasing competition and innovation," Ellison said. Theoretically, if there was only one competitor, then the need to innovate goes away, "but that's not the world I live in," he said.

"We wanted to be a survivor and a consolidator, and we felt the only way to survive and prosper was through acquisition." --Oracle CEO Larry Ellison

The lawyer also grilled him about Oracle's ability to raise prices if PeopleSoft were to disappear. "Overall, with or without PeopleSoft, pricing competition is going to get worse," Ellison retorted. "I would agree with you," he said in a flash of humor, "that if PeopleSoft is gone, we will not have to compete with them."

He also twitted Silicon Valley for thinking it could remain "forever young," when the software industry is in a period of maturity that demands new strategies. "The industry is going through consolidation after the bubble burst," he said.

Naturally, neither Ellison's appearance nor Oracle's vaunted legal team guarantees a result in the company's favor. Some legal experts believe that the Justice Department, plodding as it was at times, managed to make a case that an Oracle-PeopleSoft combination would be anticompetitive. Since Walker is known to be a stickler for the law, he is more likely to be swayed by the facts than showmanship.

Even if Walker rules in Oracle's favor and overturns the Justice Department challenge, Oracle still has some convincing to do. It must win over PeopleSoft's board and, possibly, the shareholders. And European regulators have yet to make their own determination. Stay tuned.

biography
Karen Southwick is an executive editor at CNET News.com and the author of "Everyone Else Must Fail: The Unvarnished Truth About Oracle and Larry Ellison."