23 September 2003 Only months before launching its hostile bid for PeopleSoft, Oracle tried to acquire customer relationship management (CRM) software giant Siebel Systems, sources close to Siebel have confirmed.
But, even though Oracle was initially rebuffed, the move may indicate where Oracle’s attention will turn if its attempt to take over PeopleSoft fails.
According to insiders, Oracle CEO Larry Ellison called Siebel’s founder, Tom Siebel, in the closing weeks of 2002, suggesting that Siebel join forces with Oracle.
He proposed that Oracle spin off its business applications software division and combine it with Siebel’s CRM operation to form an entirely new company. However, Tom Siebel — a former Oracle sales chief — along with the Siebel board dismissed the approach, moving quickly to strengthen their defences against any hostile takeover.
In late January 2003, the Siebel board introduced a ‘poison pill’ initiative designed to “guard against abusive takeover tactics”. Under the ‘Shareholder Rights Plan’, all stockholders will receive the right to purchase shares of a new series of preferred stock in the event of a hostile bidder attempting to acquire more than 15% of the company’s shares, making such a bid prohibitively expensive.
At the time, Siebel said the move was “not in response to any particular proposal” by an acquisitive company.
Oracle’s aim for the new company, say sources, was to replace the CRM component of its E-Business Suite with the Siebel CRM product line and integrate that closely with the suite’s other lines of financial, human resources, manufacturing and supply chain management software.
In doing so, it would create a credible competitor to SAP, the clear market leader in enterprise applications software. Currently, the Oracle applications business has annual revenues of around $2.5 billion, making it the number three player in the market behind SAP and the newly combined PeopleSoft and JD Edwards.
Although Siebel has stumbled in recent years, it is still the runaway leader in CRM software, with revenues of $1.4 billion during the last four quarters. Given Siebel’s current market capitalisation, Oracle would have to offer between $5 billion and $6 billion to tempt shareholders to abandon the poison pill provision.
Oracle senior vice president Chuck Phillips, who is leading the company’s acquisition strategy, has indicated that Oracle has other acquisition targets in mind and would be willing to pursue those if its $7.3 billion bid for PeopleSoft falls through.
The US Department of Justice and the European Commission are separately investigating the competition implications of the deal, and are expected to rule on its legitimacy sometime in October or early November.
The idea of forming a new entity by combining the Oracle applications business with a competitor may have had its origins in an earlier development.
In May 2002, PeopleSoft CEO Craig Conway proposed to Ellison that Oracle hive off its applications business and combine it with PeopleSoft in a new structure. It was an idea that Ellison liked. “We thought it was a good idea to put the two businesses together, but… were unable to agree upon the structure,” he said during the May 2003 conference call to announce the company’s PeopleSoft bid.