Oracle Corp. said yesterday that it has agreed to buy Siebel Systems Inc. in a deal valued at $5.53 billion. If approved, the acquisition would give Oracle an edge on its chief competitor, German firm SAP AG, and reunite top executives who have been bitter Silicon Valley rivals.
Oracle is the world's largest database software company, and Siebel, with a customer base of 3.4 million, is the leader in customer relationship management, or CRM, software, which helps companies organize sales, client and marketing data.
Oracle, which finally won approval of its hostile takeover for rival PeopleSoft earlier this year, has been on a buying spree as a way of bolstering its position against SAP and diversifying its product portfolio. The battle for PeopleSoft, which sparked antitrust concerns from the Department of Justice and European regulators, lasted 18 months before closing in January for $10 billion.
A Justice Department spokeswoman, Gina Talamona, said it was too soon for the agency to comment on Oracle's planned acquisition. "It's certainly something we'd be interested in taking a look at," she said.
Analysts said Oracle's proposed acquisition may not generate the same type of controversy as the PeopleSoft deal because it's not considered a hostile takeover bid and the combined company would not dominate the CRM market.
The acquisition would give Oracle a business that generates $1.6 billion in annual revenue in a CRM market worth $8.8 billion, according to research firm IDC.
If approved, the deal also reunites top executives who have publicly displayed animosity toward each other. Siebel Chairman Thomas M. Siebel spent years as an Oracle executive. When he left to start his own company, the animosity between him and Oracle chief executive Lawrence J. Ellison became part of Silicon Valley lore.
The two were chummy in a conference call with Wall Street analysts yesterday as they pitched the acquisition as a boon to shareholders, employees and customers of both companies.
"In a single step, Oracle becomes the number one CRM applications company in the world," Ellison said in a statement, adding that the deal was encouraged by large customers who wanted to see products from each of the companies work together better. "GE and other mutual customers have long encouraged both companies to get together."
Oracle agreed to pay $10.66 per share, a premium of $1.53 over Siebel's closing price of $9.13 on Friday. After deducting Siebel's $2.24 billion in on-hand cash, Oracle would effectively pay $3.29 billion. In addition, Siebel shareholders could elect to exchange their shares for Oracle stock instead of cash. But if more than 30 percent of Siebel's outstanding shares are offered, Oracle said, it would prorate the exchange.
Siebel's stock reacted to the news yesterday by jumping more than 12 percent, or $1.16, to close at $10.29. Oracle's stock rose slightly, up 21 cents to close at $13.49.
The deal is expected to close early next year.
Thomas Siebel, who controlled about 55 million shares -- or more than 10 percent -- of the company as of April, characterized the deal as "wonderfully exciting" and a "natural business combination."
Tom Dwyer, and analyst at the Yankee Group, called the acquisition a "logical marriage" and another sign of the amount of consolidation in the business application market.
But others, including Janet White of Info-Tech Research Group, criticized Oracle for its slow integration of product lines it's already acquired and said the company has overcommitted itself to support the products created by competitors it has acquired.
"You have to wonder how many resources are left over for innovating any new products or services," she said.