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Oracle-Siebel mega-merger: What the analysts say...
Optimism, scepticism, praise for Ellison's latest venture...

By Dawn Kawamoto

Published: Tuesday 13 September 2005

Oracle's mega-merger with Siebel Systems received mixed reviews on Monday from analysts, customers and partners but there were few concerns about the companies' ability to integrate.

Earlier this year, Oracle closed its PeopleSoft merger, which began as a hostile takeover attempt and took almost two years to complete. The Siebel deal, however, is expected to wrap up by early 2006.

Oracle's chief executive, Larry Ellison, spoke during a conference call with analysts: "This [Siebel] acquisition will be easier. PeopleSoft had just acquired JD Edwards, and that made it more complex. This deal is also friendly, so we know a lot more about Siebel than we did with PeopleSoft. It makes Siebel a much less risky transaction."

Nonetheless, some Wall Street analysts are sceptical.

Brent Thill, a Prudential Equity Group analyst, said in a research note: "Our concerns for the transaction lie chiefly with the deteriorating fundamentals at Siebel", citing "declining licence revenue and maintenance growing below the industry average". Thill noted that Siebel now earns approximately $488m annually from its base of maintenance customers.

The merger may also curtail any business Oracle is expecting to reap from Siebel's relationship with two of its largest partners, IBM and Microsoft, said analysts.

Jim Shepherd, an analyst atAMR Research said: "Microsoft could conceivably go with their own CRM product. They won't likely be spending more on Siebel."

Microsoft competes with Oracle in the applications market with its .NET, while Big Blue competes head-to-head in the database arena with its DB2 data management system.

Other analysts note that the merger will make Oracle a larger threat to both IBM and SAP, Oracle's archrival.

Stuart Williams, an analyst at Technology Business Research, said in a research note: "IBM lacks the application stack. The company now offers WebSphere middleware and DB2 database but lacks Oracle's share of the database market. IBM appears to be standing still as Oracle builds a complete software stack."

Williams added that applications giant SAP, on the other hand, is missing the database layer of the software stack and is only now starting to penetrate the middleware market with its NetWeaver product.

SAP's estimated $1.7bn slice of the $11.4bn CRM market may also face greater challenges from an Oracle-Siebel merger, according to AMR Research. A combined Oracle and Siebel will put it on a par with SAP, dishing up a $1.7bn slice of the pie for Oracle, according to AMR Research.

Analysts said they are optimistic that Oracle will be able to digest two major acquisitions in short order.

Mark Murphy, an analyst at First Albany, said: "Oracle has its plate full with merging products and offices but they can execute on this and deliver earnings. From a revenue standpoint, it could be choppy."

Some partners and customers of Siebel and Oracle, such as Mercury Interactive, applauded the move.

Mercury uses Oracle's database technology but also serves customers of both Oracle and Siebel. The company develops software designed to help customers improve the use of their enterprise applications.

Christopher Lochhead, Mercury's chief marketing officer, said: "In the short term, it will help drive our business." He noted that as Oracle seeks to integrate Siebel's technology - as well as PeopleSoft's applications from its previous acquisition - Mercury's customers will need assistance in integrating the technologies as they currently stand.

He said: "Integration between PeopleSoft, Oracle and Siebel will be done out of the box over time", noting that he does not believe his business will be cut in half following the merger. "Customers will still need a lot of help optimising their deployment of Oracle. It's like peanut butter and chocolate: both are great but taste better together."

CNET News.com's Alorie Gilbert contributed to this article

Dawn Kawamoto writes for CNET News.com