By Dawn Kawamoto and Margaret Kane
Monday, September 12 2005 10:19 PM
URL: http://www.zdnetasia.com/news/software/0,39044164,39254112,00.htm

update Software maker Oracle said Monday it will acquire rival Siebel Systems in a deal worth US$5.8 billion, marking the second major competitor the company has targeted since mid-2004.

Oracle executives said the mega-deal is intended as a "major beachhead" against archrival SAP, which is the world's largest business-applications seller.

Siebel specializes in customer relationship management (CRM) software. Oracle said the Siebel acquisition will add 4,000 customers and 3.4 million CRM users.

Oracle Chief Executive Larry Ellison said the deal was in part fueled by requests from partners and customers, such as General Electric, that wanted to hold a single company accountable for their applications and also ease the integration process.

"This deal is good for Oracle shareholders and customers," Ellison said in a conference call with analysts. "Many of our largest customers like G.E. have encouraged the two companies to get together."

Oracle will offer US$10.66 for each share of Siebel stock, a nearly 17 percent premium over the company's US$9.13 closing price Friday. The deal, subject to approval by Siebel shareholders and by regulators, is expected to close next year.

Ellison included the company in a list of takeover targets during Oracle's controversial and often contentious US$10.3 billion acquisition of major competitor PeopleSoft, which closed in January.

Siebel had also been the subject of takeover rumors for some time, particularly since the departure of CEO Mike Lawrie in April.

Oracle said the timing is right for its Siebel acquisition.

"Tom (Siebel) and I have been talking on and off about this deal for some time," Ellison said. "But we had to complete the PeopleSoft integration, and I said we would not do any major mergers until we had successfully completed a couple of quarters after the integration."

Charles Phillips, Oracle's co-president, said in July that the company had largely "digested" the PeopleSoft acquisition and was looking for other deals. "Given our size, we can do small, medium and large acquisitions, and multiple deals. We have a pretty good process down now," he said.

Oracle has made other purchases this year as well. In April, the company purchased retail software maker Retek for just under US$500 million. In early July, Oracle bought pricing specialist ProfitLogic for an undisclosed sum. And last month, Oracle took a US$650 million stake in Indian banking software maker I-flex Solutions.

Siebel to be "centerpiece"
Oracle plans to continue product support for Siebel's CRM technology for a number of years and use the company as a "centerpiece" in those efforts.

"Siebel will be the centerprice of our CRM strategy going forward," Ellison said. "We will continue to sell PeopleSoft CRM, Oracle CRM, but Siebel will be the centerpiece."

Siebel has been struggling financially in recent years, as it has become clear that customers are switching to companies that can offer a soup-to-nuts integrated suite, rather than a specialized application, said Tom Siebel, founder and chairman of Siebel and a former Oracle executive under Ellison.

"The shift in market dynamics has occurred over the last three to four to five years," Siebel said. "A couple years ago, customers wanted best of breed in a couple of...categories, but now customers and partners are indicating they are really looking for a suite of applications to control their costs going forward."

The two companies' customers, a number of whom they share in common, wanted a single enterprise applications vendor to hold accountable and eliminate the headache of having to deal with inconsistent pricing terms, upgrades and integration that arises from using multiple vendors, Phillips said.

A large percentage of Siebel's software runs on Oracle's databases, the companies noted. And Siebel's CRM technology and Oracle's applications and middleware share an architecture that favors industry standards.

Siebel technology will also make it into Oracle's Project Fusion, which is designed to produce fully integrated software from PeopleSoft and Oracle. Support for PeopleSoft products will expire in 2013.

Marc Benioff, chief executive of Salesforce.com, which sells hosted CRM systems that compete with products from SAP, Oracle and Siebel, wasted no time in criticizing that plan.

"Oracle's strategy is simple. Instead of innovating, buy as much installed software as possible, call it all Oracle Fusion, and make sure it all uses Oracle's database," Benioff said in a statement Monday. "Now, the same thing that happened to PeopleSoft will happen to Siebel, it will die."

Salesforce.com's annual user conference is this week in San Francisco.