"The board concluded that the proposed combination of PeopleSoft and Oracle faces substantial regulatory delays and a significant likelihood that the transaction would be prohibited," it said in a statement.

"Those delays and uncertainties, combined with Oracle's stated intentions to discontinue PeopleSoft's products, would subject PeopleSoft's business to irreparable damage."

The Oracle offer failed to match the full value of PeopleSoft, based on its financial performance and future prospects, it said.

The board said it was acting on a recommendation from a committee of independent directors.

"Oracle's offer undervalues the company and is not in the best interest of PeopleSoft stockholders," PeopleSoft president and chief executive Craig Conway said.

"It is highly conditional, faces significant regulatory delays and uncertainty, and threatens serious damage to our business."

PeopleSoft, based in Pleasanton, California, said the Oracle offer carried extra risk because it was highly conditional and could be withdrawn at any time.

Oracle launched the surprise bid after PeopleSoft had announced plans for a 1.75-billion-dollar friendly bid for its smaller rival, JD Edwards.

"PeopleSoft is committed to the JD Edwards acquisition," Conway said. "We believe that the continued execution of our strategy will create significantly higher stockholder value."

PeopleSoft has described the Oracle bid as a sham aimed at scuppering its own merger plans.

In reaction, PeopleSoft this week revised its offer for JD Edwards, adding a cash component to the terms of its deal in hopes of avoiding a shareholder vote and closing the merger more quickly.

The group said its merger with JD Edwards would lead to 150 million to 200 million dollars -- or 23 to 30 cents a share -- in cost savings and revenue opportunities.

The deal would boost expected 2004 earnings per share for PeopleSoft from the current consensus of 59 cents a share to 84 to 92 cents a share, before taking account of the non-cash charges involved, it said.

If the cost of writing down the value of the deal and a temporary writedown of revenue are included, however, the PeopleSoft-JD Edwards merger would cut 2004 earnings per share to 48 to 55 cents a share, it said.

In the first two hours of trade, PeopleSoft shares dropped 11 cents or 0.62 percent to 17.50 dollars, Oracle fell 20 cents or 1.50 percent to 13.14 dollars and JD Edwards gained two cents or 0.14 percent to 14.05 dollars.

On Wednesday, the authorities in Connecticut said they were filing suit in the US District Court at Hartford, Connecticut, alleging an Oracle takeover of PeopleSoft would flout antitrust laws.

"We are assembling a powerful coalition of states and other consumers that will suffer the same unacceptable costs if this unlawful, anti-competitive takeover is permitted," Connecticut Attorney General Richard Blumenthal said in a statement.

"The takeover would cripple competition, threatening higher prices and lower quality and cause terrible waste in the human and financial investments already made," he said.

Oracle announced this week it would sue PeopleSoft, accusing its board of failing to act in the shareholders' best interests and demanding it remove a "poison pill" provision threatening its bid.

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