Apart from giving it further growth, Oracle sees the deal as a way to establish another beachhead in its long-running battle against SAP, which only last week said it was willing to sacrifice margins to win business against Oracle.

The only mystery about the long-rumored deal is why it took Oracle so long, though the prolonged PeopleSoft acquisition must have stretched even its resources. Siebel’s share price has been flat-lining for the past two years and it has found growth difficult to attain while its market share has been mauled by aggressive newcomers such as Salesforce.com.

Oracle has offered $10.66 cash per share, a 16.7% premium over the company’s closing price on Friday, September 9, 2005 of $9.13. When Siebel’s $2.24bn cash pile is taken into account, the cost of the acquisition falls to $3.61bn.

Siebel’s 4,000 applications customers and 3,400,000 CRM users strengthen our number-one position in applications in North America and move us closer to the number one position in applications globally, said Ellison.

One of the big attraction of the deal is that most Siebel’s applications runs on Oracle databases, creating large numbers of cross-selling opportunities.

CFO Greg Maffei said he expects the transaction to be accretive to Oracle’s earnings, before exceptional items, in its first full financial year of 2007. But he added that longer term it would contribute to Oracle’s stated goal of 20% annual earnings growth. The deal is expected to close early in 2006.

Given the size of our existing R&D investment, scale of our global support infrastructure, and similarity of our back office requirements, we will recognize substantial efficiencies from combining our two businesses, said Maffei.

Oracle President Charles Phillips claimed that joint customers have recommended the transaction for over a year. We will embrace Siebel’s best-in-class CRM products and make the features of those products the centerpiece of our Project Fusion CRM, he said.

Ellison said that in common with its policy with PeopleSoft, Oracle will continue to support existing Siebel applications for many years to come. He said the company had always been promiscuous in its alliances and would support both Java and .NET.

Oracle said CRM is the largest and fastest growing of the major segments of the enterprise applications business, and it quoted IDC figures that estimate it to be worth more than $8bn in 2004, and expected to grow to $10bn by 2009.

Siebel had no future as an independent player in a rapidly consolidating sector. Apart from specialized CRM vendors and niche players in vertical markets, its main competition covering most sections of the market came from Oracle and SAP, and now it is part of the big duel in the applications software market. Siebel always argued that its primary competition came from custom-built applications developed by potential customers, and now Oracle is in a stronger position to claim that these customers would get better results by switching to its software.

Oracle said Siebel shareholders can opt to receive the equivalent offer in Oracle stock, but to avoid excessive dilution it has capped this offer at 30% of Siebel common stock.

Tom Siebel, chairman of the company he founded in 1993, described the deal as a natural business combination. He was an executive at Oracle for six years.

Highly successful during the dot-com boom, Siebel’s revenue topped the $2bn mark in 2001 but was down to $1.3bn in 2004 as customers increasingly looked to one-stop shops for their software needs.

Predictably, the new wave of hosted application providers were dismissive of the deal. Greg Gianforte, CEO and founder of RightNow Technologies, said: Consolidation may well be the only way for the ‘old guard’ of enterprise software to grab market share since software purchasing clearly continues to shift to on-demand vendors. Siebel tried to make the transition to on-demand but was late to the party. These old-guard application vendors including Siebel, Oracle, and SAP have struggled with customer satisfaction and I don’t see how this move will help solve this problem.