The Justice Department was joined by seven states in the antitrust suit in San Francisco alleging that a merger would eliminate competition between two of the biggest providers of high-end business management software, resulting in higher prices, less innovation and fewer choices.

The states of Hawaii, Maryland, Massachusetts, Minnesota, New York, North Dakota, and Texas are joining the lawsuit.

"We believe this transaction is anticompetitive -- pure and simple," said R. Hewitt Pate, assistant attorney general in charge of the Justice Department's antitrust division.

"Under any traditional merger analysis, this deal substantially lessens competition in an important market. Blocking this deal protects competition that benefits major businesses, as well as government agencies that depend on competition to get the best value for taxpayers' dollars."

The Justice Department said Oracle, PeopleSoft and Germany's SAP are the only companies that develop and sell the high-end integrated human resource management and financial management services software used by big companies and government agencies.

"Large companies, institutions, organizations and government entities depend on competition to provide and maintain enterprise software that is critical to their efficient and cost-effective day-to-day operations," said Pate.

"This lawsuit seeks to ensure that there will continue to be vigorous competition in this important industry."

Oracle chief executive Larry Ellison has said he will recommend that Oracle's board sue the Justice Department for the right to continue with the bid.

The company said in a filing with the Securities and Exchange Commission that "Oracle believes it has a very strong case and will ultimately prevail."

Just after the Justice Department announcement, Oracle issued a statement denouncing the action.

"The Department of Justice decision follows an aggressive lobbying campaign by PeopleSoft management," said Jim Finn, an Oracle spokesman.

"It is inconsistent with the overwhelming evidence of intense competition in the markets we serve, and we believe it is without basis in fact or in law. A combined Oracle/PeopleSoft will significantly benefit all customers and shareholders involved."

But PeopleSoft president and chief executive Craig Conway said Oracle should now walk away from the offer after months of wrangling.

"Now that the antitrust day of reckoning has arrived and the Justice Department has announced its decision to sue to block the transaction, it is time for Oracle to abandon its efforts" to acquire PeopleSoft begun last June, he said.

"Both companies should now devote all of their energy to competing in the marketplace to provide better products and services for customers. That's the PeopleSoft way of creating greater value for our stockholders."

In one of the bitterest takeover battles ever in Silicon Valley, PeopleSoft recently asked shareholders to prevent Oracle from grabbing control of the board at a March 25 annual meeting.

PeopleSoft has rebuffed the bid by its larger competitor Oracle, run by "bad boy" billionaire Ellison.

But half of PeopleSoft Inc.'s eight-member board is up for election at the annual general meeting.

And Oracle has proposed expanding the PeopleSoft board to nine directors, with its own slate of five nominees as the new members who would then take effective control.

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