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Is Salesforce on the Block?

SAN FRANCISCO -- Look for's (CRM - Get Report) earnings report late Wednesday to fuel rampant speculation that the company will be sold this year.

That figures to happen, regardless of whether the company's fourth-quarter growth beats the Street or disappoints.

As unsubstantiated rumors began to swirl this month that Salesforce had put itself on the block, the stock rose nearly 8% Feb. 11 and has remained above its Feb. 8 close of $50.87.

According to the central rumor, based on one thin report blogged on Feb. 9 by Tom Foremski of, CEO Marc Benioff has grown bored and will sell from a position of strength.

But such speculation has circulated for a year, with no deals appearing. The biggest issue is that the most likely buyers mentioned are probably not interested -- yet.

A spokesman for the company declined comment on the speculation.

"There is a rumor on the street that Marc Benioff, who came from Oracle (ORCL - Get Report), is tiring," said Ken Bender, managing director of the Software Equity Group, which tracks companies in the software-as-a-service (SaaS) market. "Is he bored? Quite possibly. Could garner a huge purchase price? Probably, and it deserves one."

Analysts polled by Thomson Financial are expecting fourth-quarter top-line growth of 45% to $209.2 million and net income of $5.6 million, or 4 cents a share.

In 2009, Salesforce is expected to produce EPS of 32 cents on revenue of $1.03 billion.

The stock closed Tuesday at $52.76, trading at 167 times 2009 expected earnings. Salesforce hit its one year high of $65.52 Dec. 21.

Given the company's success in a market where the big, established vendors have done little more than dabble, it would be surprising if offers hadn't already been made.

And Benioff could ask top dollar. The price he reputedly is seeking is $75 a share, which would be a mere 14% premium to the stock's most recent high, rendering the entire rumor suspect.

Calling the rumor unsubstantiated, Benchmark Capital analyst Mark Schappel said, "I'm not sure I totally buy it. I think $75 is low. I think [Benioff] would want a lot more," because Salesforce is "the undisputed leader" of the on-demand software market. Schappel covers SaaS vendor NetSuite (N - Get Report), but does not cover Salesforce. Benchmark does not make a market in shares of CRM.

"I don't see a logical buyer for them at this time," Schappel said. The primary candidate usually mentioned is Oracle, which bought on-demand supplier Siebel as a secondary alternative to its traditional software licensing and support business, a revenue model the company will not soon abandon.

"I don't think Oracle is interested in the SaaS space yet ... based on their body language and on who they've bought in the past," Schappel said. "They want to see this market develop a little more before they make their move.

"They're willing to watch from afar and see guys like NetSuite mature" before deciding how to approach the on-demand market, Schappel said. Oracle CEO Larry Ellison was an early investor in NetSuite, which provides broader business applications than those delivered by Salesforce. NetSuite went public in December.

Likewise, Microsoft (MSFT - Get Report) and SAP (SAP - Get Report) are not interested in Salesforce now because each recently developed and launched its own hosted customer relationship management software.

SAP's on-demand software is "not even out of the hangar yet. To buy another plane at this point would be a bit farfetched," Schappel said.

But that doesn't mean the big guys shouldn't want to get their hands on Salesforce, according to Bender.
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