Oracle buys Siebel

Within a month later after the most hyped acquisition of I-flex solutions, Oracle has yet again proved its mettle in mergers and acquisitions by acquiring world's number 1 CRM solution company SIEBEL.

On monday 12-SEP-2005 Oracle Corporation (Nasdaq: ORCL) announced that it has agreed to buy Siebel Systems, Inc (Nasdaq: SEBL) for $10.66 per share. The offer is valued at approximately $5.85 billion, or $3.61 billion net of Siebel's cash on hand of $2.24 billion. This makes this deal of Oracle next only to the peoplesoft deal which was valued at $ 10.8 billion.

The deal within one shot makes Oracle the World's no. 1 CRM solution company as said by the CEO Larry Ellision. Siebel has close to 4000 customer and close to 3,400,000 users use the Siebel Solution in North America. This acquisition will help Oracle scale new heights in the area of CRM applications.

"Today is a great day for Siebel Systems' customers, partners, shareholders, and employees," said Thomas M. Siebel, Chairman of Siebel Systems. "The combination of Siebel applications with the development capacity of Oracle to enhance our CRM product set assures our customers continuing success. This is a very beneficial business combination that will allow us to be even more effective in delivering high quality, leading edge solutions into the hands of satisfied customers."

The most important advantage for Oracle from this acquisition is the enhancement of the Project Fusion architecture wherein it will deploy the best in class practices of Siebel to enhance the application. The Oracle President Charles Phillips was once again in the limelight after the recent acquisition of I Flex.

Keeping in mind the size of Oracle and its extensive R & D capabilities, it is expected that substantial efficiencies will be seen after the combination of two businesses. The acquisition will get reflected only in the 2007 US GAAP report of Oracle.

The CRM applications capture and streamline all customer interactions which enables the CRM users to better understand, service and anticipate their own customers' needs. Of all major segments of the enterprise applications business, CRM is the largest and fastest growing - estimated to be more than $8 billion in 2004 and expected to grow to $10 billion by 2009, according to IDC. Siebel's CRM and Oracle's enterprise applications and middleware share an architecture that embraces industry standards, and a significant majority of Siebel's implementations run on the Oracle database. This is the quite the similar case as of I Flex.

The financial implications of transaction in terms of the shares is as follows: Siebel shareholders will receive $10.66 per share in cash for each Siebel share held, unless they elect to receive Oracle common stock, but no more than 30% of Siebel's common shares may be exchanged for Oracle common stock. In the event that Siebel shareholders holding more than 30% of Siebel common stock elect to receive Oracle common stock, the equity consideration will be pro-rated.

Earlier this year, Oracle closed its PeopleSoft merger, which began as a hostile takeover attempt and took almost two years to complete. The Siebel deal, however, is expected to wrap up by early 2006.

This deal could actually be a major problem for the partners of Siebel like Microsoft and IBM. It is expected that Microsoft will roll out its own CRM product and will stop supporting the Siebel product. Analyst's are saying that IBM seems to be standing still while Oracle is building an application stack. Another competitor in this market is the SAP which is having a share of $ 1.7 billion in the $ 11.4 billion market.

The challenge which lies ahead of Oracle now is to integrate the best practices from PeopleSoft, Oracle and Siebel. The answer I think lies in the Fusion Architecture.