Oracle buys stake in Indian banking software firm

Redwood Shores, Calif.-based Oracle said it is acquiring Citigroup Venture Capital International's 41 percent ownership stake in I-flex.

The announcements follows reports last week that Citigroup's private equity arm was looking to sell its stake in I-flex, which was valued at roughly $650 million. Oracle did not provide details of the transaction.

Oracle said the current I-flex management team will continue to run the company and will align its product development, sales, marketing and services activities with those at Oracle. The I-flex service organization will continue to work with major banks around the world. Charles Phillips, an Oracle co-president, will join the I-flex board, and I-flex stock will continue to trade on the Bombay Stock Exchange and the National Stock Exchange of India. I-flex provides software and services to 575 banks in 115 countries.

		Newsmaker Charles Phillips Oracle co-president hints at some of the database giant's next moves.

The deal is the latest in a string of moves by the world's second-largest software maker aimed at adding technologies that address the needs of specific industries. And banking software is seen as important.

"Banking is a strategic industry for Oracle, with nine out of the top 10 banks already running Oracle ERP applications," CEO Larry Ellison said in a statement. "Oracle's overall application strategy is to go beyond (enterprise resource planning) and offer customers richer industry-specific functionality. I-flex gets us there in banking."

In addition, Oracle said it will offer to purchase an additional 20 percent of the shares outstanding from the remaining shareholders at a price of about $20.28 (882.62 rupees) per share, beginning on or around Wednesday. The total cash value of the deal will be $316 million if the entire 20 percent is tendered into the offer.

The transaction, which is subject to regulatory approvals, is expected to close by the end of 2005, Oracle said.

Since completing its $11.1 billion acquisition of rival ERP provider PeopleSoft in January, Oracle has focused primarily on the retail applications sector.

In April, the company purchased retail software maker Retek for just under $500 million. In early July, Oracle bought pricing specialist ProfitLogic for an undisclosed sum.

Industry watchers said that Oracle is increasing its focus on so-called "verticals"--or markets tailored for specific industries--and predicted that the company will to continue to make acquisitions that can buttress these efforts by adding more sophisticated technology. According to Ray Wang, an analyst with Forrester Research, Oracle is making a push to increase vertical-market revenue and drive its products further into different types of corporate IT systems.

"I think that's the sort of deal you can expect Oracle to look for, companies that have deep industry experience in a particular area where they (Oracle) maybe aren't as strong or where there is a technology that can add immediate value for customers in a certain market," Wang said.

Wang added that in addition to bolstering Oracle's offerings for the banking industry--a market it has long sought to control--the I-flex deal will help the company lower its overhead exposure in IT outsourcing deals.

I-flex, with which Oracle was already partnering, employs more than 4,700 people in India, Singapore and New York, primarily in software development and consulting services operations. I-flex lists Hewlett-Packard, IBM, Intel and Microsoft as partners.

I-flex makes analytical software tailored specifically for banks, and so-called e-banking tools, and it offers related professional services. The banking specialist's flagship products include its Reveleus storage integration offering and Flexcube, a package of Web-based applications aimed at automating tasks such as retail banking, commercial banking, securities trading and bill payment.

Other industry watchers agreed that the I-Flex acquisition falls into line with Oracle's plans to build capabilities in certain industries where it can beat its rivals, namely SAP, to the punch. Jim Shepard, an analyst with AMR Research, said the banking business is a promising arena for Oracle to stake a claim and move forward.

"This is exactly what they said they are going to do, look for verticals where SAP doesn't own the market and try to acquire companies that add significant functionality and an established customer base, which they have done (with I-Flex)," Shepard said. "Banking is a very good vertical for Oracle, there's a lot of potential and they already have a presence; SAP clearly doesn't have anything that measures up to Flexcube, and they don't have the customer base that I-Flex has, so this now puts SAP in catch-up mode."

The I-Flex acquisition marks the latest in a string of Oracle buyouts aimed at adding technologies that address specific industries or niche markets. Since completing its $11.1 billion acquisition of rival ERP and CRM provider PeopleSoft in January, Oracle has focused primarily on the retail applications sector. Later in January, Oracle purchased retail software maker Retek for just less than $500 million. Oracle then bought pricing specialist ProfitLogic in early July for an undisclosed sum.

Industry watchers said Oracle is increasing its focus on so-called verticals--or niche markets--and predicted that the company will to continue to make acquisitions that can add more sophisticated technology to its industry offerings. According to Ray Wang, analyst with Forrester Research, Oracle is making a push to increase niche markets revenue and drive its products further into different types of corporate IT systems.

"I think that's the sort of deal you can expect Oracle to look for, companies that have deep industry experience in a particular area where they maybe aren't as strong or where there is a technology that can add immediate value for customers in a certain market," said Wang.

In addition to bolstering Oracle's existing applications set for the banking industry, a market it has long sought to control, Wang said the I-Flex buyout will help the company lower its overhead exposure in IT outsourcing deals.

CNET News.com's Matt Hines contributed to this report.