Oracle buys Taleo for $1.76 billion

Takes cloud war to SAP.

Oracle has agreed to buy Taleo, a maker of Web-based software for recruiting employees, for about $US1.9 billion ($1.76 billion), a quick response to rival SAP's pending plan to buy SuccessFactors for $US3.4 billion ($3.15 billion).

Oracle's offer price for Taleo is 6.5 times trailing 12-month sales, a bit more than half the 12 times multiple that SAP will pay for SuccessFactors, according to Evercore Partners.

While Oracle lags SAP in selling traditional software that customers install on their computer systems, its billionaire CEO Larry Ellison has been aggressive in adding cloud-based software offerings over the past few years.

Last month, Oracle paid $US1.5 billion to purchase established cloud player RightNow Technologies, whose software helps companies provide customer service.

Oracle and SAP are both trying to catch up with cloud leader salesforce.com, which was started over a decade ago by former Oracle executive Marc Benioff.

Oracle's Ellison was an early investor in Saleforce, but Benioff ousted him from the board when he felt Oracle got too aggressive in competing with the firm.

The online recruitment software market, an important category within the software-as-service industry itself, may grow more than 15 percent this year, according to independent market research firm Bersin & Associates.

Last year, Oracle launched Web-based versions of several of its new line of business management software programs known as Fusion Apps, which analysts say are still in the early stages of winning market acceptance.

Despite the acquisitions, it is early days for Oracle and SAP when it comes to cloud computing, as many corporate technology buyers remain skeptical that their home-brewed cloud products will hold up against products from Salesforce.com.

"SAP and Oracle are still perceived as the old guard on premise and they are not 'with it' in cloud," Nomura Securities analyst Rick Sherlund said.

"They want to own this space. They want to reinvent themselves for the cloud ... They are buying a position in the cloud through consolidation."

Some analysts questioned the rationale of the target companies in selling out since the transition to cloud-based enterprise applications is still not far along.

"We wonder if these vendors were motivated by a belief that either their core market segments were too highly penetrated and that the cost of expanding was simply too high," BMO Capital Markets analyst Karl Keirstead said.

Large enterprises increasingly looking to acquire their more mature "edge" applications from vendors such as SAP and Oracle may also be a reason for the target companies to sell themselves, he said.

Plugging holes

Analysts said that the Fusion Apps cloud products introduced last year already provide a fairly broad array of business management programs, which means that Oracle is under less pressure to do acquisitions to build out its portfolio than SAP, which has fewer Web-based offerings.

Taleo fills one of the few obvious gaps in Oracle's line-up, said Morgan Keegan analyst Michael Nemeroff.

"They did not have a recruitment package. They always needed to develop or buy it, and now they have done it," he said.

The RightNow buy filled another hole in Oracle's portfolio.

Nemeroff said that Oracle may still be looking to purchase a company that provides Web-based payroll software.

Officials with Oracle declined comment.

SAP spokesman Jim Dever said his company would discuss its strategy for expanding its cloud offerings in several weeks, after the close of the SuccessFactors deal.

"SAP is coming off the biggest year in its 40-year history. We are in an excellent strategic position to keep winning in the market, including the cloud," he said.

The Taleo deal value of $US46 a share offers an 18 percent premium to Taleo's Wednesday close of $38.94.

Other makers of cloud-based software also rose on the news.

(Reporting by Jim Finkle in Boston and Sayantani Ghosh in Bangalore; Editing by Derek Caney and Gerald E. McCormick)