Oracle Buys Siebel in $5.8 Billion Deal

Oracle has agreed to buy Siebel Systems in a deal worth US$5.8 billion, continuing an acquisition spree that began with the controversial takeover of PeopleSoft and has included a number of smaller companies since.

Oracle said the deal would make it the world’s top vendor of customer relationship management (CRM) software, surpassing bitter rival SAP.

The deal calls for Oracle to pay $10.66 in cash for each share of Siebel stock outstanding, or about $5.85 billion. Siebel has about $2.24 billion worth of cash on hand, reducing the total value of the deal to about $3.6 billion.

Industry Implications

That makes it a third the size of the PeopleSoft deal, but some analysts say it could be at least as significant in some key market segments.

“In a single step, Oracle becomes the number one CRM applications company in the world,” CEO Larry Ellison said in a statement.

Siebel brings 4,000 application customers and some 3.4 million end users of its CRM products to the merger. The deal also “moves us closer to the number one position in applications globally,” Ellison added.

Siebel Chairman Thomas M. Siebel called the merger a “very beneficial business combination” and said that Siebel’s customers would benefit from Oracle’s strength in application development.

Oracle said it planned to “embrace” Siebel’s CRM products and make their features the centerpiece of a larger suite known as Project Fusion CRM.

Acquisition Issues

Oracle said the merger has often been suggested by its customers. Many Siebel products are compatible with Oracle database systems.

CRM is considered one of the fastest-growing segments of the enterprise application business, with IDC predicting sales will grow to $10 billion annually by 2009.

The deal comes just nine months after Oracle finally closed the book on its PeopleSoft acquisition, one that took nearly two years to be completed amid a flurry of lawsuits and anti-trust investigations. In the meantime, Oracle scooped up a number of smaller companies, even outbidding rival SAP to acquire retail services software maker Retek, a deal worth $650 million.

Oracle and Siebel said the deal could close early in 2006, with Siebel’s shareholders still to vote on the merger, which will also need regulatory clearance to go forward. Whether there will be a battle over this merger is still to be seen, though analysts said it’s possible that SAP and others in the market may press for a close review of the deal.

Even without government intervention, some analysts see plenty of pitfalls ahead. Some say this merger will be more cumbersome than the PeopleSoft buy because that deal was about acquiring customers, while this one is about finding ways to blend operations and keep Siebel’s existing product lines as the centerpiece of a larger strategy.

“Mergers typically don’t go well, and this one has all the earmarks of major problems because of integration and cultural issues,” Enderle Group principal analyst Rob Enderle told CRM Buyer. “PeopleSoft was a customer acquisition … simple and elegant. This is grafting a third-party product and existing organization and culture into a mature company with two competing lines. These typically do not go well at all.”

Enderle said the merger has the potential to be “nasty” in terms of internal politics. “Keeping the key Siebel employees will be very difficult. Larry [Ellison] isn’t a great people person, and many may not like his extreme autocratic style. Odds are against this one working well.”

Market Movers

Martin Schneider, an enterprise software analyst with The 451 Group, said the deal makes sense for both companies.

“Though Oracle gains a still-strong CRM market share leader, there is no guarantee that Oracle can bring Siebel back to its glory days,” Schneider said. “SAP is still aiming for CRM dominance in all its markets, and Oracle must create a focused product message quickly and an even more focused sales force if it wants the Siebel name to continue to be associated as a leader in CRM.”

Schneider said while the SAP-Oracle head-to-head matchup will likely get the most attention, smaller vendors can gain by targeting gaps in the CRM offerings of larger companies. Companies such as Salesforce.com, which offers hosted products as Siebel now does, may see gains, for instance.

“It will be interesting to see how the enterprise CRM space plays out in the next 18 months,” Schneider added.

Enderle said competitors SAP, Microsoft, and others can benefit from scooping up employees from the two companies as the merger proceeds. “Customers are often loyal to the people in situations like this, and the sales forces of both companies will be in turmoil as the overlap there will be the most painful,” he added.