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Oracle to Buy Siebel For $5.85 Billion

UPDATED: Call it a major merger Monday.

Oracle is again shaking up the enterprise software world with a $5.85 billion cash and stock deal to buy customer relationship management software maker Siebel Systems .

The deal, announced this morning, calls for Oracle to pay $10.66 per share for Siebel, with $3.61 billion net of Siebel's cash on hand of $2.24 billion.

Oracle's CEO Larry Ellison said in a statement the merger would, in a single step, make Oracle "the number one CRM applications company in the world. Siebel's 4,000 applications customers and 3.4 million CRM users strengthen our number one position in applications in North America and move us closer to the number one position in applications globally."

Paul Hamerman, vice president of the Forrester Research enterprise applications research group, said that while the deal is in some ways similar to Oracle's acquisition of PeopleSoft -- acquiring customers and market share -- this time around it's more about the technology.

"In this case, the products are on the forefront of the deal, I think that Siebel has a significantly better product capability in CRM than Oracle had in either the business suite or in the PeopleSoft product line," he said.

What remains to be seen is how Oracle leverages Siebel's technology into its product strategy, Hamerman said. Oracle officials said on a conference call Monday morning announcing its acquisition that it would continue to support and advance its existing Oracle and PeopleSoft CRM lines.

Siebel CRM, however, will be the focal point of investment in the area, they said.

Tom Siebel, Siebel chairman, said there's been a shift in the industry the past several years away from best-of-breed applications targeting one aspect of the business environment.

"Now the customer and partner community is communicating quite clearly, in awarding with their dollars, that what they're looking for is an integrated family of applications that minimize their cost structures going forward," he told analysts.

Ellison said the acquisition was a matter of timing. Although he and Siebel had been talking on and off about an acquisition, Oracle wanted to complete the integration of PeopleSoft and have a few successful quarters before picking up another big company.

He said that while he wouldn't rule out another big buy, "I don't think you'll see us do another major acquisition in some time."

The merger news hits the industry as Siebel moves aggressively to provide software on demand to customers, a key trend in the industry in which providers provide software similar to the older ASP model. CRM providers are in the front of this software delivery model. Siebel was once seen as a holdout among providers shifting to on demand software delivery.

At the same time, Siebel is trying to stay ahead of the competition with its traditional CRM offerings. For example, in July, Forrester Research ranked Siebel first in Current Offering, Strategy, and Market Presence in the CRM market.

Four top enterprise CRM suite vendors -- Amdocs, Oracle, SAP and Siebel, were evaluated across 177 criteria researched by Forrester for the report, which also included survey results among 94 executive buyers.

However, although Siebel earned the highest score in the survey, Forrester noted that Siebel faces serious competition from other players, especially market leader SAP. The report said Siebel doesn't offer as much product or as many feature differences among the major players.

That's one reason behind Siebel's shift in strategy, especially as on-demand CRM providers such as Salesforce.com make gains in the sector.

Marc Benioff, Salesforce.com chairman and CEO, said in a statement to employees that Oracle's purchase puts Siebel's investors out of their misery, something they've been doing with Siebel customers for years.

Siebel's on-demand strategy, while it might have been delayed in its release to the marketplace, poses a direct threat to Salesforce.com's hosted CRM offering. But Benioff stated Siebel OnDemand won't find much traction at Oracle primarily because of the hosted CRM offering's ties with IBM.

"Siebel OnDemand, a joint venture between Siebel and IBM, will be the first to be buried," he said in the statement. "Siebel OnDemand is written exclusively on DB2 and Websphere and runs in IBM data centers. Oracle will kill it. Oracle does not sell DB2."

The combination of Siebel and Oracle will give Oracle even more ammunition to compete against its rival SAP in the enterprise software market, which helped drive its relentless pursuit of PeopleSoft.

Forrester's CRM report said that, while Oracle has made dramatic moves to improve its share of the CRM market through its acquisition of PeopleSoft, Oracle didn't get as many marks for "vision" and "strategy" in Forrester's criteria because "it has not articulated clearly enough the benefits of the PeopleSoft acquisition to customers and how it will all be tied together with Oracle's other products."

Today's blockbuster deal, which made no mention of any potential antitrust review by regulators, would dramatically alter that landscape yet again.

Despite the further consolidation of the enterprise application industry posed by an Oracle/Siebel merger, Hamerman doesn't expect Ellison and crew to encounter any difficulties gaining regulatory approvals for the acquisition.

"I think Oracle paved the way with the PeopleSoft acquisition," he said. "I don't see that the U.S. regulatory authorities would want to try to intervene here, they got beat up pretty badly in the last one."

The U.S. Department of Justice (DOJ) had sought to block the $7.7 billion Oracle purchase of PeopleSoft through a lawsuit in the federal courts.

Last year, a federal judge ruled in Oracle's favor, saying the DOJ could not prove the takeover would harm competition in the marketplace.

The government agency later decided not to appeal the ruling.