Oracle (Nasdaq: ORCL) will acquire Siebel Systems (Nasdaq: SEBL) for $5.85 billion in cash and stock. Oracle is offering $10.66 per Siebel share. Siebel's board approved the deal, and founder Tom Siebel agreed to vote his shares in favor of the acquisition
"In a single step, Oracle becomes the number one CRM applications company in the world," said Oracle Chief Executive Larry Ellison in a statement.
The purchase is expected to close in early 2006, subject to regulatory and Siebel shareholder approval.
Commentary:
Since most of the founders and employees of Siebel Systems learned the software business at Oracle, there has always been fratricidal aspect to their competition. The personal feelings on both sides ran deep, at times to almost operatic levels. At one customer event a few years ago Tom Siebel showed up with cuts and bruises on his face.
"I ran into Larry Ellison at bar last night," he joked at the time.
Oracle's efforts to put Siebel Systems out of business were no laughing matter. There is a story, which like most good stories deserves to be true even if it isn't, that early in the Siebel's corporate history an effort was made to convince the Redwood Shores giant to buy the new company's solution. The contract made its way up the corporate ladder until it reached Larry Ellison's desk. Ellison then made an appointment to see Tom Siebel personally. When Siebel arrived Ellison took the contract and ripped it to pieces in front of him.
True or not, it is a matter of record that Oracle turned Siebel Systems out of its partnership program when Siebel's technology was largely based on Oracle. Oracle then announced it would enter the CRM market and spend more on marketing than Siebel's total revenue. This was the impetus to create a partnership program that mandated joint marketing as a way to overcome this enormous disadvantage.
None of this should hide the great business benefit the acquisition of Siebel Systems will have for Oracle. The deal makes economic sense in a time of consolidation and business sense since at $10.66 as share it seems to have been done largely on Oracle's terms.
This transaction should prove very profitable for Oracle since it is buying Siebel at a low point in its corporate history.
Siebel Systems has been fighting a two front battle against SAP and Salesforce.com and increasingly losing both. More significantly the company was addicted to the opium of perpetual software license revenue and despite its best efforts to come clean was unable to transition quickly enough to a term licenses business model to please shareholders.
Yet a recent survey we conducted among the leading systems integrators with Revenue Rocket indicated that many clients were moving ahead with Siebel and that their business was surprisingly good.
This bodes well for Oracle's acquisition since enterprise software is very difficult to bet rid of once it is in production. The continuing maintenance and service revenue stream alone should pay for the acquisition quickly. All that lies in the future.
What should be in focus today is that Oracle has been trying for years to put Siebel Systems out of business and they finally succeeded.
