Siebel Earnings Slump Stirs Rumors of Oracle Buyout

It didnt take long after Siebel Systems reported painfully poor quarterly earnings before the rumors started that the CRM software company was going to become the latest target in Oracles relentless buying spree.

News reports circulating on the Web on Friday indicated that Oracle and Siebel were actively talking about making a deal. For the record, neither company would comment on those reports.

On face value, reports that Siebel would be willing to talk about a buyout with Oracle are plausible. Siebel has been struggling to return to consistent growth since its sales and earnings got whacked by the 2001 IT recession.

The company fought through 13 straight quarters of declining revenue until it finally reported sales uptick in the 2004 fourth quarter only. But the good news didnt last long because Siebel reported another sharp drop in revenue this week.

/zimages/3/28571.gifRead morehereabout Siebels disappointing first-quarter earnings.

The poor results cost Siebel CEO Michael Lawrie his job less than a year after he took the helm. The appointment of Siebel board member George Shaheen as the new CEO rather than hiring another professional business manager from outside the company might suggest that the board gave Shaheen a mandate to seek a deal with Oracle or another suitor.

Lawrie had been a successful business-turnaround specialist at IBM. The Siebel board may have concluded that if Lawrie couldnt succeed, then maybe nobody could. Thus they may have decided it was time to shop the company around.

This is not the first time rumors have circulated that Siebel was ripe for a buyout. Whether or not Oracle does in fact intend to buy Siebel, both Siebels recent market weakening and Oracles appetite for acquisition lend credence to the rumors.

“Oracles clear strategy is domination at all costs, at least at this point in time,” said Phil Fersht, an analyst at the Yankee Group. “It wouldnt surprise me if there were discussions” taking place between Oracle and Siebel, he said, although he guessed that a final sales price would be significantly less than the $5 billion figure now being bandied about.

What kind of a partnership would Oracle and Siebel make? An interesting one that would create major tension among SAP, IBM, Oracle and Microsoft. Oracle, already a strong player in CRM, would acquire in Siebel a large customer base, with it being a top-tier CRM vendor.

Founded by corporate chairman Tom Siebel, a man whom many credit with creating the entire concept of CRM, the company is known for advanced analytics and performance management, which would be a jewel in Oracles CRM crown.

“They really led the whole philosophy of CRM in the late 90s, at the turn of the century,” when executives at the highest lever were focusing on increased profitability, Fersht said. “They had a solution that got attention at the board level, as opposed to ERP [enterprise resource planning], which was about increasing efficiencies.”

Next Page: How much CRM is enough?

Heavy Dose of CRM

Tom Siebel is a former Oracle executive. And while its always tough for a corporate founder to sell off the company that bears his name, Siebel may have decided that the best way to maximize shareholder value was to swallow his pride, check his ego at the door and seek a deal with his former employer before the companys prospects eroded further.

/zimages/3/28571.gifClick hereto read about recent speculation that Oracle might be setting its sights on a buyout of SAP.

But on the other side of the coin, there is the question of why Oracle would want to acquire even more CRM technology. Between the CRM products Oracle acquired in the PeopleSoft buyout and its homegrown CRM products, Siebels products are looking rather redundant. Oracle would likely do a lot of rendering and winnowing to trim down the Siebel product line to its most valuable essentials.

Its possible that Oracle would most prize the Siebel OnDemand hosted CRM service. But even then, Oracle would face the significant tasks of integrating and marketing CRM technology from three different companies. How many CRM products does one company need to sell?

Then there is the question of whether Oracle is in a good financial position to spend billions more on another major acquisition. That might not be so big a problem when you consider that Oracle could use the $2.2 billion in cash Siebel has in the bank to defray the acquisition costs. Oracle would just be following the first law of corporate acquisitions: Use the other guys money.

Oracle CEO Larry Ellison has been saying for the past three years that the Silicon Valley software community is ripe for consolidation and that Oracle would help the process along with its own acquisitions. Since December, Oracle has closed a buyout deal with PeopleSoft for more than $10 billion and has outbid enterprise application arch rival SAP to buy retail software producer Retek for $630 million. In March, Oracle acquired Oblix, a privately held identity management company, on terms that werent disclosed.

There has even been recent speculation that Oracle is lining up SAP as its next buyout target, a notion that stretches credulity to the breaking point.

Oracle officials acknowledge that they usually make several small corporate acquisitions each quarter. But it might start to put a strain on even Oracles bank account and credit for it to make another multibillion corporate acquisition so soon after absorbing PeopleSoft.

Meanwhile, Siebels customers must be wondering already how well their CRM applications will run under Oracles fusion middleware plan, which is being developed to meld the PeopleSoft and J.D. Edwards ERP applications it has already acquired.

Its unlikely that customers will joyfully welcome an Oracle buyout with shouts of “the more the merrier.”

Lisa Vaas, eWEEK.com news editor/operations, contributed to the preparation of this commentary.

John Pallatto is a veteran journalist in the field of enterprise software and Internet technology.

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