Source:
Boston.com
URL link:
htt
p://www.boston.com/business/technology/articles/2005/09/13/oracle_will_pay_585_billion_for_rival_siebel/
Highlights:
Software giant Oracle Corp.
agreed to buy rival Siebel Systems Inc. for $5.85 billion yesterday in a deal reflecting a wave of consolidation in the once
-booming software sector.
The deal was widely viewed as a win for Siebel shareholders, who analysts say were pushing
for the company's sale, yielding them $10.66 per share for stock that has dropped 13 percent since the beginning of the
year.
Siebel, which once produced heady profits and stock gains through sales of innovative products, has had slower
growth, resulting in less than stellar financial results. And industry watchers said the deal was a sign that the software
business had shifted from growth mode to mergers and acquisitions to remain competitive.
Internet technology
''budgets are not growing as fast as they were in the 1990s and the cost of sales is high," said Ragu Gurumurthy, senior
vice president and head of the technology practice at the Boston consulting firm Adventis Corp. ''On top of all these
things, there is no fundamental innovation that is solving a new type of problem for the customer. If you don't have that
and it's hard to sell the products you already have, then you have to consolidate."
Siebel built its business
selling customer service software, but many of the large contracts that had fueled its growth have dried up. Siebel's
revenues dropped from $1.6 billion in 2002 to $1.3 billion last year, and the company recorded a net loss in its two most
recent quarters.
Analysts said shareholders were encouraging a sale because of Siebel's weakening
performance.
''Siebel had flattened out and it had some profitability problems. There was an expectation among
investors that something had to be done to change the company around," said Paul Hamerman, vice president of enterprise
applications at Forrester Research.
The company was eliminating jobs and in April replaced former chief executive
Mike Lawrie with George Shaheen, but that wasn't enough to quiet shareholders, Hamerman said.
Siebel spokesman Steve
Diamond would not comment on the shareholder issue, but said the company's acquisition was ''great news for our customers,
partners, shareholders and employees." Several calls to Oracle were not returned yesterday.
Already this year Oracle
has bought six other firms, not counting Siebel. Among those deals was the $10.6 billion purchase of database software firm
PeopleSoft in January. In July, it bought ProfitLogic, a Cambridge company that develops software for the retail industry,
and last month it paid $650 million for a stake inI-flex Solutions, an Indian company that makes banking
software.
While consolidation is likely to continue, big software companies like Oracle are being selective.
''Future applications will be focused on specific industries," Hamerman said.
Oracle probably wouldn't
have a hard time finding companies to buy, said Howard Anderson, a Massachusetts Institute of Technology professor of
management and a former software venture capitalist. He predicts that small software companies will have a harder time
finding profitability over the next five years than they did in the first half of this decade.
Big companies are
trimming the number of software firms they do business with, from as many as dozens down to two or three that have the
capability to handle all of their needs, he said. That will make it tough for software firms to land new business and force
many of them to turn to each other for survival.
But even then, it's more likely that small to mid-sized software
firms will be swallowed by bigger players than for them to merge with each other, he said.
''It's going to be hard
for them to buy companies, and there are going to be two or three big software companies," with enough capital to do
acquisitions, he said.