Oracle chief executive Larry Ellison stated that the purchase, which values Siebel at $10.66 a share, would allow his company to jump in front of the current CRM market leader SAP.
"In a single step, Oracle becomes the number one CRM applications company in the world," he said.
"Siebel's 4,000 applications customers and 3.4 million CRM users strengthen our number one position in applications in North America and move us closer to the number one position in applications globally."
However, Oracle president and chief financial officer Greg Maffei hinted that the purchase would lead to cut backs arising from "substantial efficiencies".
"Longer term, Siebel will contribute to Oracle's stated goal of 20 per cent annual earnings growth," he said.
"Given the size of our existing R&D investment, the scale of our global support infrastructure, and the similarity of our back-office requirements, we will recognise substantial efficiencies from combining our two businesses."
Clive Longbottom, service director at analyst firm Quocirca, suggested that it was not a matter of if, but when, Siebel would be acquired.
"Siebel has needed to be picked up for some time. There are other suitors that would probably have made better sense, but it seems that Oracle is going for the number one slot no matter what the cost and aiming to become the only boy on the CRM block except for SAP," he said.
"Siebel was going nowhere with new licence revenues that were virtually non-existent as there is no real new business. There are around 3,500 Siebel customers which are all top-end businesses. If you look at it in this light it's a good buy on Oracle's part."
Thomas Siebel, chairman of Siebel Systems, described the deal, which allowing for Siebel's cash reserves of $2.24bn values the firm at $3.61bn, as "very beneficial".
"The combination of Siebel applications with the development capacity of Oracle to enhance our CRM product set assures our customers continuing success, " he said.
Oracle president Charles Phillips added: "Our joint customers have consistently recommended this transaction to both companies for over a year."
He added that Siebel's CRM products will become the centrepiece of Oracle's Project Fusion CRM development.
The Siebel board has voted in favour of the transaction, and Tom Siebel has agreed to vote his shares in favour. Siebel stockholders will convene in a special meeting to vote on the acquisition. Oracle stockholder approval is not required.
While the transaction and timing are subject to regulatory approvals, the deal is expected to close in early 2006.
Siebel shareholders will receive $10.66 per share in cash for each Siebel share held, unless they elect to receive Oracle common stock. No more than 30 per cent of Siebel's common shares may be exchanged for Oracle common stock.
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