NEW YORK (CNN/Money) - Oracle Corp. is buying Siebel Systems in a cash and stock deal valued at $5.85 billion, the companies announced Monday.
Shareholders of Siebel (Research) will receive $10.66 a share in either cash or Oracle (Research) shares for each of their shares, a premium of 17 percent from Friday's closing price.
Shares of Oracle slipped immediately after the announcement, but were up about 30 cents, or about two percent, to $13.58 in pre-market trading on Inet just before the market open, while shares of Siebel gained $1.22, or about 13 percent, to $10.35 a share.
Siebel is a leading provider of customer relationship management (CRM) software used by businesses to automate sales and customers service operations. One of the things that made it such an attractive takeover target is a strong balance sheet, with $2.24 billion in cash, cash equivalents and short-term investments on hand. That reduced the net price of the proposed deal to Oracle to $3.6 billion.
While the proposed price is a solid premium, it is barely above the $10.61 at which the stock opened the year. The stock took a hit in July when it reported break-even second-quarter results, rather than the expected earnings of two cents a share. It also lowered sales and earnings guidance for the current quarter that time.
Even at the proposed purchase price, shares are only worth about a tenth of the value of the stock five years ago, shortly after a September 2000 two-for-one stock split.
Bert Hochfeld, analyst with Hochfeld Independent Research Group, said the deal is a good one for Oracle, one that should allow it to add to earnings per share within a quarter or two after the purchase closes. And he said that the price paid is certainly a good one for Siebel shareholders.
"Siebel wasn't going to trade at $10.50 on its own life for the rest of your professional life," he said.
The deal has long been rumored and executives with the two companies said that talks of a deal have been going on for sometime, although they did not provide a detailed time line. They said that the deal was pushed by major corporate customers who wanted to see a more integrated suite of software products.
"Customers haven't been shy about giving us their opinion," said Charles Phillips, Oracle co-president, in a call with analysts.
Oracle said that no more than 30 percent of Siebel shares will be bought using Oracle stock, and that if more Siebel shareholders than that want Oracle shares, shares will be distributed on a pro-rated basis. Oracle also intends to repurchase an equal number of its own shares that it uses in the deal.
It is the second major purchase of another software company by Oracle in the last 12 months, but this one is far more friendly than the hostile bid it used to buy PeopleSoft in a deal that closed in January.
Siebel's board of directors voted in favor of the transaction, and Thomas Siebel has agreed to vote his shares in favor of the acquisition. The deal is subject to shareholder and regulatory approval.
Thomas Siebel, who is chairman but not CEO of the company, owned about 10.6 percent of Siebel shares in the company's most recent proxy statement in April. But he has been selling Siebel shares in recent months for less than $9.00 on average, according to SEC filings.
"What really brought this together is a shift in market dynamics we've seen occur over past three, four or five years," Siebel told investors. "They had wanted best in class applications. Now the customer and partner community is communicating quite clearly and voting with dollars that what they want are integrated applications."
Oracle CEO Larry Ellison said that Oracle will continue to be active in acquisitions in the future, although it will probably take a pause on large deals until this one is completed. Source