Oracle to buy rival Siebel in US$5.85b deal

SAN FRANCISCO (Reuters) - Oracle said on Monday it would buy rival Siebel Systems in a deal that values Siebel at US$5.85 billion and gives Oracle a stronger foothold in the robust niche of customer management software as it challenges industry leader SAP of Germany.

Oracle, hunting for takeovers in a consolidating software market, will buy Siebel for US$10.66 per share, a 16.8 percent premium to Siebel's closing share price of US$9.13 on Friday. The agreement is worth US$3.61 billion after subtracting Siebel's US$2.24 billion in cash.

Oracle chief executive Larry Ellison said the acquisition would immediately boost profits and help the Redwood Shores, California-based software maker close the gap with SAP -- the leading provider of business application software for large companies.

Since January, Oracle has closed seven acquisitions, including its recently completed US$10.6 billion hostile takeover of PeopleSoft. It has one other pending deal in addition to the Siebel bid.

Ellison said on a conference call that customers such as General Electric Co encouraged the deal -- which requires Siebel to pay a US$140 million fee if it terminates the deal under certain conditions -- and added he did not see Oracle making another major acquisition "for some time."

"It also strengthens our number one positions in the application business in North America," Ellison said. "And it moves us closer to our goal of being number one in applications globally."

Customer relationship management (CRM) software helps companies track sales, customer service and marketing functions.

Siebel's technology, cash reserves and deep customer relationships will give Oracle a competitive software bundle that includes a database, middleware -- software that helps a variety of applications work together as if they were a single system -- and high-quality CRM software, JMP Securities analyst Pat Walravens said.

He added the Siebel purchase would be another blow to the key services business at Oracle rival International Business Machines Corp. That division, which installs business software systems for large companies, counts SAP as its number one partner. PeopleSoft and Siebel had rounded out the top three.

"It's probably also not good for Salesforce.com, because Oracle will be much more aggressive on the pricing than Siebel could afford to be," Walravens said.

Protege turned rival

Siebel, founded by Ellison's one-time protege turned bitter rival Tom Siebel, gained prominence in Silicon Valley in the late 1990s as a leader in CRM software.

Company shares traded above US$100 in late 2000, but Siebel's dominance in its lucrative market has since eroded. Complaints that the software was complicated and expensive to install battered customer satisfaction rates and Siebel leadership dismissed efforts to deliver the service via the Internet.

Meanwhile, aggressive rivals like SAP and online upstart Salesforce.com Inc, which has seen dramatic growth on demand for its web-based software, have cut into Siebel's business in recent years with simpler offerings.

If the deal closes, Oracle -- the number one database maker -- would also be running neck-and-neck with SAP to lay claim as the world's biggest CRM software vendor, technology market research firms IDC and AMR said.

Oracle challenged SAP with its PeopleSoft acquisition as a way to cut into the German company's lead in the overall market for business applications, or software that automates tasks like payroll and inventory tracking.

Oracle chief executive Larry Ellison said in January Oracle would not buy another company until it had completed the integration of PeopleSoft, which was headed by former Oracle executive Craig Conway.

Kaufman Brothers analyst Peter Jacobson said some shareholders might call for Oracle to pay a higher price, but he noted Siebel's performance has lagged and the company has undergone a good deal of organizational change.

"More often than not, these deals go through at agreed-to valuations," Jacobson said.

Oracle, which has made no secret it might be interested in buying Siebel, said the companies' joint customers have recommended such a deal for more than a year. Most of Siebel's systems run on the Oracle database.

Siebel shareholders will receive US$10.66 per share in cash unless they elect to be given Oracle common stock -- but no more than 30 percent of Siebel's common shares will be exchanged for Oracle stock. The companies expect the deal to close early next year.

Reporting by the San Francisco and Philadelphia bureaux.