Oracle vowed to vigorously challenge the Justice Department's lawsuit to block its hostile bid to take over PeopleSoft Inc. It plans to take its case directly to a PeopleSoft user group on Monday, while at the same time continuing its $26-a-share offer for the business software maker's shares.

"The decision was very clear," Hewitt Pate, the Justice Department's assistant attorney general for the antitrust division, said at a news conference outlining his decision. "We took this action because it's the right thing to do. We believe this transaction is anticompetitive--pure and simple."

Market definition is a key to the issue with PeopleSoft--and now the Justice Department, which is arguing for a narrow definition of the market with just three key players: Oracle, PeopleSoft, and SAP. Oracle maintains the market--human-resources and financial-management software, essentially--is much wider and includes multiple vendors competing vigorously with each other.

Pate said his staff had interviewed customers who rely on such software and found that "a great number of them were very concerned" about the prospect of reduced competition that could result from a merger of the two companies. He said also that consulting companies were also interviewed in the government's investigation.

Even Microsoft, currently a minor player in this market, was interviewed about "potential for entry," but Pate indicated the potential-for-entry issue didn't play an important part in its investigation.

Oracle co-president Chuck Phillips is scheduled to address Quest, PeopleSoft's largest user group, on Monday to discuss its plans should it finally prevail in its acquisition attempt. Quest is composed primarily of J. D. Edwards users. PeopleSoft acquired Edwards last year.

Phillips, formerly an industry analyst at Morgan Stanley, and investment-banking institution, was singled out for mention in the Justice Department's filing. Quoting from a report Phillips issued in 2002, the filing stated: "The back-office-applications market for global companies is dominated by an oligopoly comprised of SAP, PeopleSoft, and Oracle. The market is down to three viable suppliers who will help re-automate the back-office business processes for global enterprises for years to come. PeopleSoft has made it into an elite club of critical enterprise software suppliers--those with thousands of customers relying on the company for mission-critical functions."

Oracle also said it's withdrawing its slate of directors for PeopleSoft and won't be soliciting proxies for PeopleSoft's annual meeting on March 25. It attributed those developments to its belief that the litigation with the Justice Department will extend beyond the March 25 date. Oracle said it is extending its $9.4 billion tender offer to June 25.

PeopleSoft hailed the Justice Department's move. "What I feel vindicated by is that all of the shareholders I've talked to feel the real value of the company is higher than Oracle's offer," CEO Craig Conway said in a statement.

Attorneys General from 11 states have joined the Justice Department in the litigation. Oracle's proposed acquisition is also facing scrutiny by the European Union's antitrust agency.