Oracle will buy financially ailing rival Siebel Systems for $10.66 per share, in Oracle's attempt to satisfy its hunger for acquisitions and strengthen its arsenal against SAP. The deal is valued at about $5.85 billion, but Oracle's net cost equates to a net price of $3.61 billion, due to Siebel's $2.24 billion of cash on hand. Subject to regulatory approval, the deal is expected to close in early 2006. Oracle's sticker price for Siebel is substantially less than its high profile and hostile takeover of PeopleSoft, which was valued at roughly $11 billion.
Even so, Oracle's latest buy meets the company's two key criteria for major acquisitions: It is immediately accretive and strategically sound, according to CEO Larry Ellison. "Siebel is the CRM category leader," Ellison said during a conference call. "[The acquisition] makes us number one in markets in which we already participate. Siebel is the CRM category leader with more than 4,000 customers and 3.4 million users live. It makes Oracle number one in sales automation, number one in service automation, and number one in call center automation. It also strengthens our number one position in applications business in North America, and it moves us closer to our goal of being number one in applications globally."
Siebel, which topped CRM magazine's CRM Market Leader charts in the enterprise CRM category for three straight years, brings to Oracle its robust, vertically focused applications, especially in financial services, telecommunications, pharmaceutical, and the public sector. "This is a very, very exciting day for the employees, shareholders, and customers of Siebel systems," said Tom Siebel, founder and chairman of Siebel, during the same call. "This discussion has been going on between Siebel and Oracle for years, [and] was driven...by our customers and partners. This [acquisition] is going to assure their continued success [with] the technology stack and product they're using."
Regarding customer desires, Charles Phillips, president of Oracle, said, "Customers haven't been shy about giving us their opinion. They're looking for a single strategic relationship across enterprise applications." This includes a consistent enterprise agreement, upgrade policy, packaged integration between Oracle and Siebel products, 24/7 support, and a single consulting organization, according to Phillips.
The Top Spot
The Siebel acquisition, rumors of which have been heard for years, is certainly not a surprise to industry pundits. "Siebel was going to get acquired by somebody. The thing was, there was only a small number of companies who could've acquired them," says Chris Selland, principal analyst at Covington Associates. With the acquisition, however, there is an unquestioned number one in enterprise CRM--Oracle, according to Selland. "SAP has been spending a lot of time, money, and energy investing in [taking] over the number one slot in enterprise CRM. Oracle has a lot of explaining to do, a lot of rationalization to do, and a lot of work to do, but no question, they took over the number one spot with this."
SAP, however, isn't convinced. "I'm not sure that they become the largest CRM vendor, despite the claims made by Larry Ellison this morning," says Bill Wohl, vice president of product public relations at SAP. "There is no doubt that for a long time Siebel had significant leadership in this market, but all of that relates to looking into the past. The best definition of market leadership comes from new license revenue and not new license plus maintenance revenue. SAP has been the only enterprise applications vendor both in the CRM space and the ERP space that has continued to grow its license revenue during this time period."
Denis Pombriant, managing principal of Beagle Research Group, notes that although the Siebel-Oracle combination may be able to compete more effectively against SAP than Siebel alone, Oracle's acquisition of PeopleSoft, which itself purchased several companies, including J.D. Edwards and Vantive, is clouding the picture. "As a consequence Oracle has this huge amalgamation of code sets and they're going to have to be judicious about how they use the investment they've made in other products."
Oracle's response? Project Fusion. "Siebel is the category leader and they understand the category better than anybody else on the planet. It actually makes building the Fusion CRM products easier and less risky, and not harder," Ellison said. "The Siebel middleware team will be joining the Oracle middleware team and be working on the future of Fusion products and supporting existing Siebel products. We intend to continue to support the existing suite of Siebel products for some time to come--not unlike PeopleSoft. We said we're going to support the products for many many years. We're doing that also with the Siebel products."
The integration process will be helped by the fact that the buy was amicable. "This deal is friendly, " Ellison said. "We had been talking for a long time. We've had a lot of time to work out integration plans. We know a lot more about Siebel than we knew about PeopleSoft. We have the benefit of the experience of integrating PeopleSoft. Siebel isn't the amalgam of two rather large companies that just recently got together, [like] J.D. Edwards and PeopleSoft. Siebel is a much less risky transaction and we're much more experienced at doing integration, so I think overall there's very very little integration risk involved with the Siebel transaction."
The Hosting Influence
On the midmarket side of the equation, though, analysts maintain that the move bodes well for on-demand players, particularly Salesforce.com. "In the short term it's going to work out very well for Salesforce.com because it's so easy to enter and exit the on demand license," says Janet White, a research analyst at Info-Tech Research Group. "In the long term Oracle probably will try to at least maintain what Siebel has been doing in the on-demand market. I have to question [though] how much time they're going to have to innovate in terms of new technologies or services for the on-demand market specifically."
In a note to his employees Salesforce.com Chairman and CEO Marc Benioff proclaimed that the opportunity to be the global leader in the CRM market has opened for the company. "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. Now, the same thing that happened to PeopleSoft will happen to Siebel--it will die. Siebel OnDemand, a joint venture between Siebel and IBM, will be the first to be buried."
But, according to Ellison, Siebel's CRM OnDemand product was one of the most attractive assets of the deal. "It's a key part of the strategy [and] one of the key motivators for us doing this deal. We think on demand is going to be increasingly important. The Siebel OnDemand products are improving at a very rapid rate and we intend to invest in them heavily. We think that's a very important asset we want to preserve and invest in as this acquisition is concluded."
However, Pombriant says there is uncertainty surrounding Siebel's long-running relationship with IBM. "Now with Oracle owning Siebel there are a lot of questions about what the future holds for that alliance and that relationship. Certainly, IBM and Oracle are great competitors on the database side of the house. Whether or not they can continue to cooperate in CRM remains to be seen."
From the customer perspective, however, Pombriant contends that end-user companies should not be concerned. "The important thing to remember is that all of what's transpiring today is activity in the financial realm. Nothing that happened today invalidated anybody's software license. Nothing that happened today caused anybody's applications to not run. The first thing is that everybody should just take a deep breath and understand that and continue using what they've got, and evaluate the market as they normally would. Some of the fallout from this won't be felt for months or possibly years."
additional reporting by Alexandra DeFelice and David Myron.
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