Oracle's $5.85 billion agreement to buy Siebel Systems capped the busiest day for mergers in more than two months, and suggests companies...
Oracle’s $5.85 billion agreement to buy Siebel Systems capped the busiest day for mergers in more than two months, and suggests companies are confident about the economy’s prospects.
The Oracle-Siebel deal to create the top seller of customer-service software was the largest of more than 40 transactions reported yesterday. Ford’s agreement to sell Hertz, the nation’s largest car-rental company, is the second-largest, at $5.6 billion.
In other deals announced, Wachovia agreed to buy auto-finance companies Westcorp and WFS Financial for $3.91 billion, and eBay said it will purchase Internet phone provider Skype Technologies for $2.6 billion.
The flurry of tie-ups shows companies are looking beyond the dent in the economy that Hurricane Katrina and higher energy prices will cause, said analyst Tom Burnett. The Dow Jones industrial average had its best week since May last week, as investors speculated the Federal Reserve may pause in its interest-rate increases because of Katrina.
“It’s very encouraging in terms of corporate expectations,” said Burnett, president of Merger Insight, a research unit of brokerage Wall Street Access. “Corporate America is willing to bet on future growth prospects overall in spite of the short-term problems that we’re going to have.”
The number of transactions yesterday speeds the pace of a year with the hottest global merger-and-acquisition market since 2000, with $1.69 trillion in mergers struck so far. At the same point last year, $1.2 trillion had been announced, Bloomberg data show.
The last time there were more U.S. mergers announced in a day was June 30, when Bank of America agreed to buy credit-card issuer MBNA for $35 billion, capping $40.2 billion in deals that day.
$5.85 billion – Oracle buying Siebel Systems
$5.6 billion – Ford selling Hertz
$3.91 billion – Wachovia buying Westcorp, WFS Financial
$2.6 billion – eBay buying Skype Technologies
Some investors are betting Hurricane Katrina and higher oil prices have slowed economic growth enough that the Fed doesn’t need to raise interest rates through the end of 2005.
Last week, the Dow average rose 2.2 percent, its biggest weekly gain since May 20. The Dow was almost unchanged yesterday at 10,682.94.
“There is really a trend of consolidation across many, many industries and geographies,” said Frank Aquila, a senior mergers partner at Sullivan & Cromwell. “The pipeline is full, and I think we’ll see a lot of transactions in the next few months.”
Sullivan & Cromwell is the top global merger adviser among law firms this year, advising on $310 billion of deals, according to Bloomberg data.
Ford is selling Hertz to buyout investors including Clayton, Dubilier & Rice and the Carlyle Group.
Buyout firms, flush with cash from new funds they’ve raised, have fueled mergers all year. They have announced a record $191 billion of acquisitions in 2005, data complied by Bloomberg show.
Carlyle raised $7.85 billion in March for the biggest U.S. buyout fund. Blackstone Group has commitments of $12.5 billion for a global fund.
The Hertz deal, which includes assumption of $9.4 billion of debt, is the largest leveraged buyout since Kohlberg Kravis Roberts paid $31 billion for RJR Nabisco in 1989.
Ford, the No. 2 U.S. automaker, is selling Hertz to raise cash as it loses market share to rivals led by Toyota.
Ford’s North American business has been unprofitable for three of the past four quarters. Chief Executive William Clay Ford Jr. has promised to increase earnings.
“Ford would welcome the cash for liquidity purposes, to help provide for large unfunded pension liabilities and for research and development,” Burnham Securities analyst David Healy said.
The Siebel deal, expected to close in early 2006, would help Oracle tap the biggest and fastest-growing slice of the market for business applications.
Siebel, a Silicon Valley neighbor to Oracle, lost the top spot in the market to Germany’s SAP in 2004 because clients wanted software suites, not just customer programs.
Wachovia is buying Irvine, Calif.-based Westcorp and its subsidiary, WFS Financial, to add California’s biggest provider of used-car loans. The expansion would reduce Charlotte, N.C.-based Wachovia’s dependence on mortgages and home-equity loans as rising short-term interest rates threaten to stem home lending.
eBay’s purchase of Skype is its seventh major acquisition of the past year.
The largest online marketplace seeks to keep pace with Microsoft, Yahoo! and Google in the Internet calling market, which is expected to surge eightfold to about 27 million U.S. users by 2009, according to research firm IDC.