Oracle Corp.'s deal to buy Siebel Systems Inc., the No. 1 maker of customer relationship management software, is another step in its effort to become a more significant technology partner to the financial services industry.
Oracle, of Redwood City, Calif., said Monday that it would pay $10.66 a share for Siebel. Oracle chief executive Lawrence J. Ellison said in a conference call that Siebel's solid customer base in banking was one of the reasons he pursued the San Mateo, Calif., company, which he noted is also in the telecommunications, pharmaceuticals, and government fields.
Siebel's financial customers include KeyCorp, PNC Financial Services Group Inc., and Royal Bank of Canada. Besides its popular CRM software, it also offers a line of teller, branch, and Internet banking software that it acquired with its April 2004 purchase of Eontec Ltd. of Dublin.
On Aug. 2, Oracle announced an agreement to buy most of the stock of the Indian core processing developer i-flex solutions ltd., which has been the world's top seller of core banking software for the past three years, for as much as $909 million.
In that deal, which is expected to close by yearend, Oracle is to buy the 41% stake in i-flex held by Citigroup Inc.'s Citigroup Venture Capital International for $593 million in cash and to make a tender offer in India for up to 20% more of i-flex's shares, for $20.33 each.
Michael Maoz, a research fellow at Gartner Inc. in Stamford, Conn.,, said that buying Siebel could help Oracle create an interoperable platform that would support a variety of software packages for its bank customers, "so you can live with a Siebel system and an i-flex system, et cetera."
However, he also said that it could be difficult for Oracle to further penetrate the banking market, which has historically developed many customer-facing applications in-house. "Bankers like to control the process. They haven't relied on packaged products, because they like to build things," Mr. Maoz said.
The financial services market is one of Oracle's top sources of revenue, and in the past year it has consistently said it wants to boost its sales to banks. In 2003 it formed an advisory group that concluded that Oracle's strongest growth potential was in financial services.
In January, Oracle closed its $10.3 billion acquisition of the software database vendor PeopleSoft Inc. of Pleasanton, Calif. Charles Phillips Jr., Oracle's president, said in December that PeopleSoft's banking customers would help Oracle win "more critical mass" in the industry.
The Siebel deal is Oracle's largest since then, and Mr. Ellison said he would slow his M&A engine once it is completed. "I don't think you'll see another major acquisition anytime soon," he said.
Oracle said it expects the deal to close in early 2006, though Siebel shareholders still have to give their approval (Oracle's do not). Since Oracle is also obtaining Siebel's war chest of $2.24 billion in cash, the deal's effective price is $3.61 billion instead of $5.85 billion.
Thomas M. Siebel, Siebel Systems' chairman and CEO, owns 54.8 million Siebel shares, or 10% of the company, and has agreed to vote his shares in favor of the deal. Mr. Ellison said Mr. Siebel would remain with Oracle for a number of years.
