Oracle Boosts Bid for India’s i-flex

Oracle said Thursday it was increasing its offer and boosting the number of shares it will buy of India-based banking software firm i-flex as the database and applications giant tries to convince more of the firm’s shareholders to sell.

The company said it would increase the number of i-flex shares it would buy to 35 percent of the total outstanding and, to motivate stockholders, would boost its offer to 2,100 rupees (US$47.19) per share, a 42 percent bump over the 1,475 rupees ($33.15) per share it had offered in September.

In total, the new offer is worth about $1.3 billion. If it is able to acquire all the shares it hopes to buy, Oracle would own 90 percent of i-flex.

Oracle CEO Larry Ellison said the offer would be the last Oracle will make, and that the company would not seek to de-list the shares in India unless their value dips. The current offer expires on Dec. 23.

“There will not be another open offer,” he said. “This is the last opportunity for i-flex shareholders to tender their shares to Oracle.”

Fit or No Fit?

Shares of i-flex, which trade on the Bombay Stock Exchange and the National Stock Exchange of India, soared to record high levels on the news. In the U.S., Oracle shares were up about 1.4 percent in midday trading Friday to $17.75.

Oracle first took a stake in i-flex a year ago, acquiring 55 percent of the company at that time. In September, it said it would seek to increase its ownership stake to 75 percent.

Some analysts are puzzled by Oracle’s interest in i-flex, seeing few synergies. Others say i-flex boasts a number of blue-chip financial services firms among its users, including HSBC and Citigroup.

Those clients could become favorable targets for sales of other Oracle products, including its core database systems and the growing bundle of productivity, personnel management and other back-office applications it has rolled up during a three-year-long acquisition spree.

Oracle’s stake in i-flex marked its “arrival on the world stage of vertical banking technology,” Tower Group analyst Virginia Garcia said. The company was positioned to offer a unique set of banking and enterprise capabilities, she continued.

The deal is “potentially groundbreaking,” Garcia claimed, adding that “if Oracle plays its cards right, it may emerge as one of the few vendors in a solutions-oriented marketplace to offer specialized banking solutions across the front, middle and back offices.”

When it first bought into i-flex, Ellison said financial services is one of several key vertical markets where Oracle is eager to expand its current presence. He said nine of the top 10 banks in the world run Oracle’s enterprise resource planning (ERP) applications and that in the banking vertical, i-flex would help it “go beyond ERP and offer customers richer, industry-specific functionality.”

It’s All Relative

Even at the new higher levels, the i-flex deal remains a small fish in Oracle’s big acquisition pond when compared to the $11 billion it paid for PeopleSoft, the $5.8 billion it paid for Siebel Systems and even the $1.8 billion it paid for J.D. Edwards.

By buying smaller-scale and narrowly-focused software providers, however, Oracle may be able to get a foot deeper into key verticals ahead of main applications rival SAP.

The moves may also be a hedge against larger-scale industry trends that point toward slower growth and even lower prices for enterprise software, according to Forrester Research analyst Andrew Bartels.

“Having industry-specific specialization can create a buffer against those trends,” he said.

Forrester recently rated the Flexcube banking platform from i-flex as a top choice for retail banks and noted the ability to integrate with other Oracle solutions as a factor.