People are shorting because they know if the deal does go down, it won't happen for another year. Plus, if the deal is a scam and Oracle pulls it, it will delay the JDEC/PSFT merger by at least 6 months to a year. So, for the next 6 months PSFT employees and customers have no idea what to expect from their company. Oracle has successfully accomplished their goal; to mess up the merger at this moment in time. Even if the JDEC/PSFT merger does occur, it won't happen for 6 months to a year.
You know what you are PARTLY right. Read between the lines and see it from Oracle's view point. They just sued PSFT to prevent the merger. "The suit will contend that PeopleSoft and its board breached their fiduciary duties, charging they failed to act in the best interest of PeopleSoft's shareholders. Oracle is seeking, among other things, to nullify PeopleSoft's amended J.D. Edwards offer." You see nothing could happen until all law suits are done. At best, if Oracle's bid does not go through, even though JDEC and PSFT have this board apporval bs, the law suit could stop everything in its tracks.