Oracle Corp. is buying its struggling rival Siebel Systems Inc. for about $5.85 billion, continuing a recent shopping spree that has eliminated two of its biggest competitors as it aims to topple Germany’s SAP AG in the business applications software market.
Under the terms of the deal announced Monday, Redwood Shores-based Oracle will pay $10.66 per share in cash or stock for San Mateo-based Siebel, a once rapidly growing maker of customer support software that has fallen on hard times during the past three years.
The price represented a 17 percent premium from Siebel’s market value entering Monday.
Siebel shares rose $1.18, or 12.9 percent, to $10.31 during midday trading on the Nasdaq Stock Market, where Oracle’s shares gained 12 cents to $13.40.
Siebel has $2.24 billion in cash, reducing Oracle’s net takeover cost to $3.6 billion.
The deal further bolsters Oracle’s aggressive drive to overtake SAP as the world’s largest maker of business applications software — the computer coding that automates a wide range of administrative tasks.
In the past nine months, Oracle has either completed or announced five takeovers of business applications software makers, an expansion that has cost more than $17.6 billion so far.
The spree has swept up two of the industry’s best-known names, Siebel Systems and PeopleSoft Inc., both of which were run by former Oracle executives who had developed a frosty relationship with their former boss, Oracle CEO Larry Ellison.
For its part, SAP downplayed the significance of Oracle’s latest conquest. “Oracle is in the business to buy customers. Ours is to service customers,” said SAP spokesman Tony Roddam.
The Siebel acquisition, expected to close early next year, affects about 4,000 customers.
Siebel Systems employs about 5,000 workers, many of whom are expected to lose their jobs as Oracle cuts costs in an effort to boost its profits by about 20 percent annually.
Industry analyst Richard Williams of Garban Institutional Equities predicted Oracle will lay off more than 2,000 workers, based on the percentage of jobs that the company eliminated after devouring PeopleSoft, which had about 11,000 employees. Oracle fired 5,000 workers after that deal.
Oracle executives acknowledged layoffs are likely in the Siebel deal, but didn’t provide specific projections in a Monday conference call.
Oracle’s intensifying focus on business applications software largely reflects the slowing growth of its database product line, which accounts for more than three-fourths of the company’s sales. Ellison also wants to deepen Oracle’s stack of technology products to compete with two other longtime rivals, Microsoft Corp. and IBM Corp.
“Oracle was behind the curve so it needed to buy some big headline-making companies and feed off their technology,” Williams said. “They really didn’t have much choice, unless they wanted to see their stock price cut in half. They needed to keep their sales growing, and to do that, they need to cannibalize smaller companies.”
In 2003, Ellison drew up a list of potential takeover targets topped by PeopleSoft and Siebel Systems, according to internal documents released in an antitrust trial last year.
Oracle first stalked PeopleSoft, launching an 18-month takeover battle that culminated in a $11.1 billion acquisition in December.
That deal pitted Ellison against one of its former Oracle lieutenants, Craig Conway, who spearheaded PeopleSoft’s staunch resistance to the takeover bid until he was fired a few months before the two sides negotiated a truce.
The U.S. Department of Justice tried to derail Oracle’s bid for PeopleSoft, arguing the combination would stifle competition. But a federal judge brushed aside the government’s objections and cleared the deal, making it unlikely regulators will oppose Oracle’s takeover of the much smaller Siebel Systems. European regulators also must approve the takeover.
Siebel Systems also is run by a former Ellison protege, Tom Siebel, who has occasionally sniped at his former boss since leaving Oracle and subsequently starting his own company in 1993.
But Tom Siebel, who is his company’s largest individual shareholder, welcomed Oracle’s takeover offer, calling it a “wonderful, exciting event” during a conference call with analysts Monday. In the same call, Ellison said Tom Siebel is expected to remain with Oracle for a few years after the takeover, but didn’t provide specific details.
Siebel Systems has been shrinking since 2001 amid weakening demand for its main product — customer relationship management, or CRM, software that helps companies analyze their sales patterns and market their products. Siebel’s annual revenue has plunged from a peak of $2.1 billion in 2001 to $1.3 billion last year, a slump that has dragged down the company’s stock from its highs of more than $100 per share.
Hoping to turn things around, Tom Siebel stepped down as the company’s CEO last year and turned over the reins to a veteran IBM executive, Mike Lawrie. But sales continued to falter, prompting the company’s board to oust Lawrie in April and replace him with George Shaheen, an executive best known in Silicon Valley for overseeing the expensive demise of online grocer Webvan Group.
Since that shake up, a disgruntled group of Siebel shareholders has been pressuring the company’s board to find a buyer, opening the door for Oracle.