Behind the scenes: Oracle's pursuit of Siebel

While battling to acquire PeopleSoft, Oracle was in merger talks with Siebel Systems, according to a new SEC filing.

In the midst of a hostile takeover battle for PeopleSoft, database giant Oracle also was laying the groundwork for its eventual acquisition of Siebel Systems.

According to a proxy filing this week with the U.S. Securities and Exchange Commission, Oracle and Siebel were quietly discussing a potential merger in November 2003, about five months after Oracle made a hostile bid for PeopleSoft.

And while much of the enterprise software industry was focused on the publicly acrimonious PeopleSoft acquisition, the talks between Oracle and Siebel were not without their own back-room intrigue. Over the course of a two-year period, Oracle in June of 2005 dangled a potential buyout range of $11 to $12.60 a share, only to ultimately stand firm at $10.66 a share when an agreement was announced in September.

Siebel's serious search for a suitor began in June 2003, when it formed the "Perseus Group," a collection of outside legal and financial advisors, to find it a buyer or a strategic alliance.

Oracle and Siebel, which had held casual discussions in the past about a potential merger, according to the SEC filing, entered into more formal talks in November 2003. Several days before Thanksgiving, Siebel's chief financial officer, its chief technology officer and an executive vice president met with Charles Phillips--then Oracle's executive vice president of strategy partnerships and business development--to sign a nondisclosure agreement and discuss a merger.

"Ultimately, Oracle and Siebel Systems elected not to pursue such discussions, since Oracle was then pursuing the acquisition of PeopleSoft," according to the SEC filing. "From time to time following the November 2003 meeting, representatives of the two companies...contacted each other to discuss whether the parties should explore a business combination."

As previously reported, Oracle CEO Larry Ellison noted in a 2004 videotaped deposition that Siebel's founder, Tom Siebel, had approached him about selling his company. That deposition was part of the Department of Justice's antitrust case against Oracle over its merger plans with PeopleSoft.

And this spring, when Siebel ousted its chief executive, Mike Lawrie, appointing board member George Shaheen to replace him, executive recruiters rightly speculated that such a move is usually done as a short-term measure when a company is on the block.

Circa Shaheen's appointment, Siebel entered buyout talks with two private-investment partnerships. Ultimately, however, those talks collapsed when the potential buyers determined that Siebel wanted more than they were willing to pay.

Oracle enters, stage left
Following Siebel's annual shareholders meeting in June, Oracle's co-presidents, Phillips and Safra Catz, contacted Siebel. They discussed the possibility of a merger price of about $11 a share in cash or a combination of Oracle stock and cash.

"Mr. Siebel stated that in light of the fact that Siebel Systems' market price was then approximately $9 per share, he felt that the Siebel Systems board of directors would be more receptive to a higher per-share price," the SEC filing states. "Mr. Phillips and Ms. Catz contacted Mr. Siebel later that day, indicating that Oracle might be willing to pay a price in the range of $11 to $12.60 per share, subject to further business and financial analysis, and due diligence."

Two days later, Siebel discussed Oracle's proposal with James Gaither, a Siebel board member and a Perseus member, as well as Goldman Sachs, its investment bank, and Cooley Godward, its outside legal adviser. On June 15, Oracle and Siebel signed a nondisclosure agreement.

For the next two weeks, Oracle conducted an extensive

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