Oracle Spends $900M for i-flex Stake

Oracle Corp. (Nasdaq: ORCL) has bought a majority interest in Indian banking software specialist i-flex solutions, a deal that represents a shift in the companys expansion strategy (see Oracle Buys i-flex, Oracle Completes ProfitLogic Acquisition, and What's Next on Oracle's Hit List?).

Under the terms of the deal, Oracle will acquire Citigroup’s 41 percent stake in i-flex for $593 million. In accordance with Indian law, Oracle will also make an offer to purchase an additional 20 percent of outstanding shares from shareholders, which could bring the value of the deal up to $909 million.

The move represents a change in tack for Oracle, which last year fought an 18-month war of attrition to get its hands on PeopleSoft Inc. (Nasdaq: PSFT). (See Oracle Takes Control of PeopleSoft, Oracle & PeopleSoft: The Final Round, and PeopleSoft Plot Thickens.)

But swallowing a company of PeopleSoft’s size is easier said than done, and Oracle CFO Greg Maffei recently admitted that the vendor is now focused on M&A in specific industry verticals (see Oracle's on the Prowl).

Whereas Oracle had to address layoffs and customer support concerns with the PeopleSoft acquisition, i-flex is a more of a bite-sized morsel (see Oracle Announces Job Cuts and PeopleSoft Posse Still Peeved)On a conference call this morning, Oracle and i-flex execs said there are no plans to cut the Mumbai-based vendor’s workforce of 5,500 employees. The current i-flex management team will continue to run the company, which will remain publicly traded, they said. “It minimizes the integration risk because, essentially, we don’t have to do any integration,” says Maffei.

Of course, there is method in Oracle’s madness. I-flex’s flagship offering is Flexcube, a software that lets financial institutions run applications over the Web as well as automated teller machines and mobile devices. Oracle will now get its paws on the vendor’s customer base, which numbers 575 banks in 115 countries.

Oracle, which is keen to expand its presence in the lucrative banking industry, sees an opening helping financial organizations develop specialized applications. “We’re moving beyond enterprise resource planning applications into the most important business processes within a bank,” says Oracle's president, Charles Phillips.

Companies in a number of sectors, including finance, are also moving towards service-oriented architectures (SOAs), which let users run services in the form of application software across different computing environments. Oracle has already made some moves into this space, so it is likely that i-flex will form part of the company’s long-term SOA strategy (see Software Vendors Adopt Oracle Middleware and SOAs: Approach With Caution).

Phillips is tight-lipped about Oracle’s future M&A plans, although he hints at more activity in areas such as finance and retail, where the firm recently snapped up another software specialist, Retek Inc. (see Oracle Acquires Retek and Oracle Gets German OK for Retek). “We will go deeper and deeper into those industries."By snapping up company after company, Oracle is also limiting the M&A options available to its archrival SAP AG (NYSE/Frankfurt: SAP). (See Oracle Increases Retek Offer and SAP Sidles Up to PeopleSoft Users.)

In trading today, Oracle shares rose 7 cents (0.52 percent) to $13.59. SAP shares were also on an upswing, rising 42 cents (0.98 percent) to $43.14.

— James Rogers, Site Editor, Next-Gen Data Center Forum