online.wsj.com
Updated June 10, 2003
Ellison's Consolidation Maneuver
May Make Siebel a Merger Target
By MYLENE MANGALINDAN
Staff Reporter of THE WALL STREET JOURNAL
Oracle Corp.'s bold bid for PeopleSoft Inc. thrusts another software maker, Siebel Systems Inc., into the spotlight -- and perhaps into play.
Like PeopleSoft, Siebel thrived in the 1990s by making highly specialized business software that complements Oracle's basic offerings. Siebel's software is designed to help companies manage customer information. Founder and Chief Executive Thomas M. Siebel, like PeopleSoft CEO Craig Conway, is a former Oracle salesman now feuding with his former boss, Oracle Chief Executive Larry Ellison. Siebel, of San Mateo, Calif., and PeopleSoft, based in nearby Pleasanton, Calif., are about the same size, too, with market values of roughly $5 billion.
But as Oracle's hostile offer for PeopleSoft makes clear, the days of independent, niche software companies may be numbered. Even before last week, Siebel was the subject of speculation as a possible takeover target amid declining sales, layoffs and a 90% plunge in its stock price from bubble-era heights of $119.39 a share in November 2000.
"Siebel will vanish," Mr. Ellison predicted in an April interview. Now, he has ratcheted up the pressure on Siebel even more by disclosing Friday that he has talked to Mr. Siebel in the past year about buying the company. (See article)
Mr. Siebel and a company spokesman declined to comment Monday about the possibility of a takeover. In past interviews, Mr. Siebel has dismissed Oracle as a threat, claiming his former employer has been unable to build effective customer-relationship software. "Oracle has been futzing around, in and out of it, for seven years," he told analysts last year.
Siebel Systems Executive Vice President David Schmaier said Monday that the potential deals among rival software makers would be "good for Siebel" by forcing competitors to focus on internal issues.
Mr. Siebel is used to going his own way. In 1993, he turned down a large chunk of venture capital, instead starting Siebel Systems with his own money, including Oracle stock gains. Rather than focusing on his software's bells and whistles, Mr. Siebel prefers to talk about ways that clients can benefit from using it. And he has long shunned the lucrative consulting deals that many software companies use to boost revenue.
Mr. Siebel keeps close tabs on details, quizzing employees in hallways about their customers. He gets involved personally in closing deals larger than $4 million. His strict rules are a stark contrast to Silicon Valley's khaki-pants casual culture: Siebel employees who meet with customers are required to wear suits as a sign of respect. All workers are supposed to keep their office doors open, and must refrain from eating at their desks.
"He's a tyrant and a driver and a motivator," says Mike Seashols, a friend of Mr. Siebel's and chief executive of closely held Golden Gate Software Inc.
In the early 1990s, Siebel pioneered what is now called "customer-relationship-management" software, expanding a program the founder got the idea for while at Oracle to help its own salespeople track their accounts. Now, Siebel sells the software to other companies to help their sales forces keep tabs on customer contacts.
Siebel's revenue grew quickly in the 1990s, topping $2 billion in 2001, up from $421.6 million in 1998. By November 2000, four years after the company's initial public offering, its stock was trading at more than 100 times its initial-offering price of $1.06 per split-adjusted share. Mr. Siebel, who cashed in options valued at more than $250 million in 2000 and 2001, still holds a $500 million stake.
During the downturn, Siebel's stock price fell more precipitously than that of other software companies, in part because it doesn't have a large revenue cushion from maintenance and consulting work. In the quarter ended March 31, Siebel's revenue fell by 30% compared with a year earlier. The company has posted a loss collectively during the past four quarters and laid off roughly one-third of its employees.
"Siebel has been in play for two years, ever since their stock price went down," said analyst Erin Kinikin of Forrester Research Inc., a Cambridge, Mass. consulting firm.
Siebel faces competition not only from larger rivals including Oracle and Germany's SAP AG, but also from upstarts. For example, Salesforce.com rents customer-relationship software over the Internet at a fraction of the cost of Siebel's software.
Last week, Siebel shares rose 17% as talk of deals between PeopleSoft and J.D. Edwards & Co., Denver, then between Oracle and PeopleSoft, made Siebel appear a more likely takeover candidate. On Monday, Siebel shares fell 34 cents to $10.64 in 4 p.m. trading on the Nasdaq Stock Market.
Siebel "may be unviable as a stand-alone" company if Oracle succeeds in acquiring PeopleSoft, wrote Bill Whyman, president of the Precursor Group, a Washington, D.C., research firm, in a note Monday.
Siebel also has been fending off investor complaints about excessive executive compensation amid its share-price slide. On Wednesday, Siebel shareholders will vote on a resolution at the company's annual meeting that would tie executive pay to stock performance. Shareholders also pressured Siebel to allow them to attend the meeting in person, reversing an earlier plan to limit the meeting to an Internet broadcast.
Mr. Schmaier, Siebel's executive vice president, said in an interview last month that the company is more focused on software than rivals who have diversified into professional services. He predicted that Siebel's sales would recover as large customers start spending on technology again. Fewer than 5% of businesses have any customer-relationship software, he says, and orders that are deferred or reduced in size today are future "backlog." |
