The State of Connecticut intends to file an antitrust lawsuit against Oracle in a bid to thwart its hostile takeover of PeopleSoft.
The lawsuit alleges that Oracle's planned takeover would violate state and federal antitrust laws and damage the state's economy.
"Oracle's hostile takeover bid has the potential to cost the state millions of dollars, and is a threat to the progress we have made in recent years in technology improvements," said Connecticut governor John Rowland.
Oracle surprised the industry earlier this month by announcing an offer to take over its business software rival. After swapping lawsuits with PeopleSoft, Oracle yesterday upped its offer to $6.3bn (£3.8bn).
The State of Connecticut has a personal stake in the acquisition. On 8 July, it is supposed to go live with the first stage of a five-year, $100m (£60m) PeopleSoft installation, and the state's Comptroller Office, which is participating in the lawsuit, is concerned about the effects of an Oracle takeover.
"We're in the middle of a $100m conversion, and the whole thing will probably be derailed, or at least severely hampered if we had to switch from PeopleSoft to another company," said Steve Jensen, a spokesman for the state's Comptroller Office.
Oracle intends to cease development of PeopleSoft's software if the acquisition is successful, according to Oracle spokeswoman Jennifer Glass. But, she added, "customers are key to the success of this deal, and we're going to do everything we can to maintain any implementation that's already in progress".
Connecticut expects other states to eventually join in the antitrust suit, Jensen said, but an industry analyst expressed scepticism about the state's antitrust claim.
The combined Oracle-PeopleSoft company would not lead the enterprise applications market, said Yankee Group analyst Mike Dominy.
"I don't see how it becomes anti-competitive. There are still a number of other choices," he said. "SAP is still the huge dominant player."
Glass declined to comment on whether or not Oracle expected the takeover bid to prompt any other antitrust actions.
Robert McMillian writes for IDG News Service