THERESE POLETTI'S TECH TALES: Has Oracle run out of companies to buy?

Last week, Oracle Corp.'s first dividend payment in the company's nearly 30-year history was a signal to many on Wall Street that the software giant is slowing down its acquisition frenzy.

Either that, or Chief Executive Larry Ellison is trying to get some cash for a new sailboat. He could also be making improvements on his Japanese-style compound in tony Woodside, Calif. As one of the company's biggest shareholders, Ellison stands to earn $230 million if Oracle pays its 5-cent-per-share dividend every quarter for the next 12 months.

But let's set talk of that aside, and take a look at Oracle's track record for a minute. After completing its $8.9 billion acquisition of business software developer PeopleSoft in 2004, Oracle then embarked on a major spending spree, seeking to build a solid base to grow into new software arenas.

The company laid the groundwork by first buying large-scale, infrastructure-like software firms, like PeopleSoft for human resource systems. A year later, it bought Siebel Systems, a developer of customer-relationship software used by sales teams to keep track of customers.

Oracle's spree kicked into high gear in 2006, when the company bought 18 firms. However, it appears to be slowing down, with 13 deals in 2007 and 10 last year. The company's last major deal was BEA Systems in late 2007 for $6.8 billion. Since then, Oracle's last 12 purchases were considered too small or immaterial to require disclosure of the price.

Enough building blocks

Like a spoiled teenager who has gone on a major clothes-shopping spree, Oracle realizes it now has enough building blocks for a new wardrobe, and needs to enhance its purchases with some targeted shoes and accessories.
"The theme was to buy broad groups of technology applicable to numerous industries and now they are narrowing the focus," said Brenon Daly, analyst with tech-merger consultant The 451 Group in San Francisco. Oracle has focused on several areas where it can provide specific industries with software packages, tailored to their unique needs.

And it is a diverse group of industries. For instance, it bought Retek, 360Commerce, ProfitLogic and Advanced Visual Technology for retailing. In health-care systems, it announced a deal to buy Relsys. And for telecommunications, it bought Portal Software, Net4Call and HotSip.

"The large pieces are in place for Oracle," Daly said. "Now they are looking at the really nitty gritty things."

Daly says the company's strategy of getting into the applications business, and then selling other products on top of that is working.

"You take that incredibly efficient machine, and you slap a bunch more applications in there," he said. "You are selling to a pharmaceutical company. Do you need some content management stuff? What about HR stuff? We have this stuff from PeopleSoft. Maybe you might even sell a database license too."

Steadily integrated

So far, Oracle has steadily integrated all these companies, with the smaller ones obviously easier to meld into its growing operations.

And even though the climate for deals has withered on the vine, Oracle is a name that keeps coming up on the rumor mill. The company had nearly $11.3 billion in cash and marketable securities as of Feb. 28, and may still have the desire to keep buying, albeit at a slower, more targeted pace.

Take Red Hat Inc. Rumors surfaced again this week that Oracle was interested in the Linux distributor and services company. The reports sent Red Hat shares higher, but some on Wall Street quickly discounted the idea, at least for now.

"While we think an Oracle purchase of Red Hat is eventually highly likely, we think it's premature, in part because of IBM's highly publicized interest in Sun Microsystems Inc. and the pursuant uncertainty around whether IBM would continue to be an advocate for Red Hat," Jeffries & Co. Inc. analyst Katherine Egbert said in a note to clients.

In addition to its cash, Oracle also has about $11.2 billion in debt. So the company likely will proceed cautiously when it comes to doing any more big deals, as opposed to recent media reports suggesting the opposite. Right now in this economy, the longer one waits watching its prey, the better the deal that can be struck.

Author: Therese Poletti @ www.MarketWatch.com