Oracle is buying hobbled Siebel Systems for about $5.85 billion, eliminating another competitor in its campaign to grab market share from...
SAN FRANCISCO — Oracle is buying hobbled Siebel Systems for about $5.85 billion, eliminating another competitor in its campaign to grab market share from business-applications software leader SAP.
The deal accelerates the drive by Oracle Chief Executive Larry Ellison to overtake SAP as the world’s largest maker of business-applications software, which automates a wide range of administrative tasks.
In the past nine months, Oracle has either completed or announced five takeovers in the field, an expansion that has cost more than $17.6 billion. Among the acquired was PeopleSoft, which — like Siebel Systems — was run by a former Oracle executive who had developed a frosty relationship with Ellison.
For its part, SAP downplayed the significance of Oracle’s latest conquest.
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“Oracle is in the business to buy customers. Ours is to service customers,” said SAP spokesman Tony Roddam.
The Siebel acquisition, whose products help manage companies’ relations with customers, affects about 4,000 customers.
The company has about 5,000 workers, many of whom are expected to lose their jobs as Oracle cuts costs in an effort to boost profits by about 20 percent annually.
Industry analyst Richard Williams of Garban Institutional Equities predicted Oracle will lay off more than 2,000 workers, based on the percentage of jobs the company eliminated after devouring PeopleSoft, which had 11,000 employees. Oracle fired 5,000 workers after that deal.
Oracle executives acknowledged layoffs are likely but didn’t provide specific projections in a conference call yesterday.
Oracle’s intensifying focus on business-applications software largely reflects the slowing growth of its database product line, which accounts for more than three-fourths of the company’s sales.
Ellison also wants to deepen Oracle’s stack of technology products to compete with two other longtime rivals, Microsoft and IBM.
“Oracle was behind the curve so it needed to buy some big headline-making companies and feed off their technology,” Williams said. “They really didn’t have much choice, unless they wanted to see their stock price cut in half. They needed to keep their sales growing, and to do that, they need to cannibalize smaller companies.”
The big question is whether Oracle has bitten off more than it can chew, said Octavio Marenzi, chief executive of Celent, a technology consultancy.
“Mergers are always difficult, so doing so many at once only compounds the difficult,” he said. “This appears to be an unduly risky strategy.”
AMR Research analyst Jim Shepherd thinks Oracle can pull it off, primarily because the PeopleSoft takeover has gone more smoothly than most industry experts anticipated.
Ellison began preparing for a software-industry shakeout in 2003 when he drew up a list of potential takeover targets topped by PeopleSoft and Siebel Systems, according to documents released in an antitrust trial last year.
Oracle first stalked PeopleSoft, launching an 18-month takeover battle that culminated in an $11.1 billion acquisition in December.
That deal pitted Ellison against one of his former Oracle lieutenants, Craig Conway, who spearheaded PeopleSoft’s resistance until he was fired a few months before the two sides negotiated a truce.
The U.S. Department of Justice tried to derail Oracle’s bid, arguing the combination of the two companies would stifle competition. But a federal judge brushed aside those objections and cleared the deal, making it unlikely regulators will oppose Oracle’s takeover of Siebel Systems, which is much smaller.
European regulators also must approve the takeover.
Siebel Systems is run by Tom Siebel, who has occasionally sniped at his former boss since leaving Oracle and starting his own company in 1993. But Siebel, who is his company’s chairman and largest individual shareholder, welcomed Oracle’s takeover offer, calling it a “wonderful, exciting event.”
Siebel Systems has been shrinking since 2001 amid weakening demand for its main product — customer-relationship-management, or CRM, software that helps companies analyze their sales patterns and market their products.
The niche accounts for about $3.5 billion in new software sales annually, according to technology-research company Gartner. But Siebel Systems has been losing market share to SAP, Oracle and Internet startup Salesforce.com.
“Siebel could see the writing on the wall and knew the time had come to make a deal,” said Yankee Group analyst Tom Dwyer.
Under the terms of the deal, Oracle will pay $10.66 a share in cash or stock for Siebel.
The price represented a 17 percent premium from Siebel’s market value entering yesterday. Despite four years of flagging fortunes, Siebel still has $2.24 billion in cash, reducing Oracle’s net takeover cost to $3.6 billion.
Shares of Siebel rose $1.16, or nearly 13 percent, to close at $10.29 yesterday. Oracle’s shares gained 21 cents to finish at $13.49.
Oracle CEO Larry Ellison has agreed to donate $100 million to charities to settle a lawsuit revolving around a $900 million gain he made by selling some Oracle stock after the dot-com bust.
The settlement, confirmed yesterday by an attorney who filed the suit, requires the approval of Superior Court Judge John Schwartz. A hearing was scheduled for Sept. 26.
The case revolves around some of the stock Ellison sold in 2001 after he and other top executives predicted the company would have better results than it ultimately delivered.
The Associated Press