Takeover Talk Sparks Siebel Systems

Rumors of a possible deal with Oracle stem a weeklong slide.
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Propelled by rumors that the company is in play, troubled

Siebel Systems

(SEBL)

rallied Friday, gaining nearly 5%, one of its best performances since the company

preannounced a wide first-quarter miss in early April.

Sources told several analysts that the two companies have been negotiating seriously for about three weeks. Some of those sources also told Hochfeld Independent Research Group that

Oracle

(ORCL) - Get Report

made an offer for Siebel earlier this month, only to have it rejected as too small.

However, those sources were not "high-level," and HIRG analyst Marty Schutz said "we are skeptical that Siebel will actually be bought by Oracle over the near term."

Schutz noted that Siebel's founder and chairman, Tom Siebel, isn't likely to sell cheaply. "He'll want a significant premium to the company's depressed stock price," he said in an interview.

Patrick Mason, who follows Siebel for Pacific Growth, said that if time is any indication, the discussion is past the "preliminary talk" stage. While it doesn't mean a deal will happen, if things have progressed to that point, Mason thinks the takeout price would need to be $10 a share. He added, however, that Siebel has been inflated due to these acquisition rumors and that a valuation based on fundamentals would range from $7 a share to $9 a share.

Siebel closed Friday up 41 cents to $9.

Neither company would comment on the rumors, but angry Siebel shareholders are planning to attend next week's analyst day and demand answers. "We want to know if this offer -- if there was one -- went to the board, as it's supposed to," said one institutional holder of the stock.

Shareholders representing a significant portion of Siebel's float

met in New York earlier this month, vowing a campaign to pressure the company into buying back a significant number of shares, or putting itself up for sale.

Oracle, which is working hard and spending big to beef up its applications business, has expressed interest in buying Siebel for some time. It even appeared on a "shopping list" of possible acquisitions entered into evidence during the antitrust trial that ultimately allowed Oracle to acquire PeopleSoft.

But timing may not be right. CEO Larry Ellison has assured analysts on a number of occasions that he will not pursue another major acquisition until the integration of PeopleSoft is further along. At the moment, Oracle is integrating software code bases and personnel from PeopleSoft and J.D. Edwards, which PeopleSoft purchased in 2003, as well as the much smaller Retek.

Ellison has said the integration is going well, but a large purchase now would certainly raise many questions for analysts. And Ellison knows it.

Still, it's never smart to rule out a course of action the headstrong billionaire may choose to take. And Tom Siebel, who fired CEO Mike Lawrie soon after the quarterly miss was announced, is also known for his volatility.

If talks go on for months, it might remove the PeopleSoft integration issue, noted Mason. This game has plenty of innings left to play.