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Ellison Takes His Act to Court

By Jim Kerstetter Finally, after three weeks of sometimes intriguing, but more often snooze-inducing testimony in Oracle's (ORCL) antitrust battle with the Justice Dept., show time finally arrived on June 30 for Oracle CEO Lawrence J. Ellison. The TV crews outside the towering federal courthouse in San Francisco's Civic Center district were eyeing a swank Bentley parked nearby. Could it be his?

Upstairs, on the 17th floor outside Judge Vaughn Walker's courtroom, a crowd gathered with Godot-like anticipation 40 minutes before the courtroom doors opened. Bailiffs furrowed their brows and counted the queue. Clearly, not everyone was going to get inside for this day of courtroom drama. One frantic reporter was even offering a cheeseburger for anyone who would trade spots with him in line.

Justice is suing to block Oracle's $7.7 billion hostile takeover bid of rival PeopleSoft (PSFT) on grounds that it would hurt competition in the high-price enterprise-applications software market. Oracle argues that because German software giant SAP (SAP) is actually the dominant applications seller, customers will still have plenty of choices. Also, Oracle's lawyers argue that Microsoft's (MSFT) apparent interest in enterprise sales, along with a host of other companies, means price competition will get tougher in the coming years.

EMPHATIC RED TIE. Just before 2 p.m., Ellison finally made his debut on the witness stand. He was certainly dressed for the occasion. Instead of the usual "Larry uniform" -- a well tailored casual suit over a dark-colored mock turtleneck -- he wore a charcoal-gray double-breasted suit, a white shirt, and an emphatic red tie.

It turned out that Ellison's two hours of testimony proved to be more titillating than illuminating. The software tycoon was his usual charming self, cracking jokes, expounding on the software industry, and wiggling out of tight spots in a long cross-examination by lead Justice prosecutor Claude Scott.

The crowded courtroom got plenty of entertainment in Ellison's testimony: He testified that in June, 2002, PeopleSoft CEO Craig Conway called him, and in a conversation that lasted over 30 minutes discussed "combining" the two companie' applications businesses. "He thought we'd be better able to compete with SAP if we combined forces," says Ellison. "I thought it was a great idea." A PeopleSoft spokesman confirms that Conway called Ellison and asked if he would consider selling Oracle's applications business to PeopleSoft.

BOBBING AND WEAVING. More meetings between other Oracle and PeopleSoft execs followed, but ultimately, Ellison says, nothing came of it because Conway was "insistent" that he would be the one to run the combined company. In short, PeopleSoft wanted to buy -- not sell. About a year after that first phone call, PeopleSoft announced it was merging instead with J.D. Edwards & Co., an enterprise-applications company based in Colorado.

That's when Oracle struck. On June 2, 2003, at 7:34 a.m., President Safra Catz sent Ellison an e-mail saying "Now would be the time to launch on PeopleSoft." Ellison replied 16 minutes later, "Just what I was thinking." Oracle, Ellison testified, had prepared a list of potential acquisition targets, and PeopleSoft, with its huge base of customers and a healthy flow of high-margin maintenance fees, topped the list. Four days later, Oracle initiated its hostile bid.

On cross-examination from Scott, Ellison bobbed and weaved with the best of them. The prosecutor -- intimating that Oracle was using leverage from the takeover bid to steal customers from PeopleSoft -- asked the Oracle CEO if his company had created a "war room" to manage PeopleSoft customer poaching. "I'm not sure what you mean by a war room," Ellison responded.

"STOP ME." He and Scott parried back and forth several times, but Ellison never really answered whether a war room existed, and if it did, what it looked like. Did it have big maps on the walls, plans for an invasion of PeopleSoft's campus in Pleasanton (Calif.)? He didn't say.

At other times, Scott allowed Ellison to ramble, perhaps hoping the famously talkative executive would reveal something embarrassing. Not a chance. "Stop me at any time!" Ellison said, interrupting his own soliloquy about the software industry.

The courtroom drama had other moments. Ellison acknowledged that Oracle had to go into damage control after the angry response from PeopleSoft customers. Yes, as everyone on the planet assumes, he's not buying PeopleSoft to acquire new technology, Ellison allowed.

WILL IT MATTER? He told the court that Thomas Siebel, founder and chairman of rival Siebel Systems (SEBL), tried to sell his company to Ellison, who also revealed that Oracle is still looking at other acquisition targets. And he declared that one of his long-held beliefs about his business was in fact off target: that big suites of software like the one Oracle sells would eliminate the need for so-called best-of-breed software sellers.

It's unclear if Ellison's testimony will matter much in Judge Walker's decision, which should come in about a month. Walker must decide if Justice has established that a $400 million super-high-end software market would be imperiled by Oracle's takeover bid and whether customers really would be harmed. That, more than the swank Bentley parked out front, is what's this is really all about. Kerstetter is a correspondent in BusinessWeek's Silicon Valley bureau

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