Oracle to Buy Siebel for $5.85 Billion

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Call it a major merger Monday.

Oracle (Quote, Chart) is again shaking up the enterprise software world with a $5.85 billion cash and stock deal to buy Customer Relationship Management (define) software maker Siebel Systems (Quote, Chart).

The deal, announced this morning, calls for Oracle to pay $10.66 per share for Siebel, with $3.61 billion net of Siebel’s cash on hand of $2.24 billion.

Oracle’s CEO Larry Ellison said the merger would, in a single step, make Oracle “the number one CRM applications company in the world. Siebel’s 4,000 applications customers and 3,400,000 CRM users strengthen our number one position in applications in North America and move us closer to the number one position in applications globally.”

The announcement is certain to get a closer than usual review for potential antitrust concerns, given the size of Oracle’s influence in the enterprise software market already. The companies said that, while the transaction and the timing are subject to regulatory approvals, the deal is expected to close in early 2006.

The merger news hits the industry as Siebel is moving aggressively to provide software on demand to customers, a key trend in the industry in which providers provide software similar to the older ASP (define) model. CRM providers are in the front of this software delivery model. Siebel was once seen as a holdout among providers shifting to on demand software delivery.

At the same time, Siebel is trying to stay ahead of the competition with its traditional CRM offerings. For example, in July, Forrester Research ranked Siebel first in Current Offering, Strategy, and Market Presence in the CRM market.

Four top enterprise CRM suite vendors — Amdocs, Oracle, SAP and Siebel — were evaluated across 177 criteria researched by Forrester for the report, which also included survey results among 94 executive buyers.

However, although Siebel earned the highest score in the survey, Forrester noted that Seibel faces serious competition from other players, especially market leader SAP. The report said Siebel doesn’t offer as much product or as many feature differences among the major players. That’s one reason behind Siebel’s shift in strategy, especially as on-demand CRM providers such as Salesforce.com make gains in the sector.

The combination of Siebel and Oracle will give Oracle even more ammunition to compete against its rival SAP in the enterprise software market, which helped drive its relentless pursuit of PeopleSoft.

Oracle is hosting a conference this morning to discuss the deal.

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