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Oracle's Shopping Spree Isn't Over

By Sarah Lacy Larry Ellison is at it again. After spending approximately $800 million to gain a foothold in the retailing software market, the chief executive of Oracle (ORCL) is now turning his attention to financial services. The Silicon Valley software giant is in talks to buy Citicorp's (C) 43% stake in i-flex Solutions of India, sources familiar with the discussions confirm.

The deal, said to be worth $650 million, is expected to result in Oracle later acquiring a controlling interest in the publicly traded company.

I-flex is the largest Indian application-software outfits -- and one of the world's largest makers of software for banks. It boasts more than 450 banks as customers, and has been gaining momentum, adding more than a dozen big U.S. financial institutions to its customer base in the last year, according to company Chairman Rajesh Hukku.

From a strategic perspective, the deal is similar to Oracle's recent purchase of two retail-software companies: Retek, for which it paid $650 million, and ProfitLogic, which analysts estimate cost about $200 million (see BW Online, 7/7/05, "Oracle's Small Step, Bigger Plan").

BUYING IN. Retail and financial services are two of the only remaining industries with no single dominant software player. Both sectors are prime growth areas for Oracle and its arch-competitor, SAP (SAP), and both companies have stated publicly that they're going to expand their presence in those vertical markets.

"If you can buy them at the right price and execute right, there are dozens of companies we're looking at," Ellison told BusinessWeek in June (see BW Online, 6/30/05, "Oracle's Squeeze Play For Profits").

Oracle has been writing a lot of checks lately. With nearly $4 billion in cash, it has been buying its way into new markets. SAP, on the other hand, has taken the tack of building its own products in-house. If the i-flex deal comes through, Oracle will get a customer base filled with marquee names, the knowhow of the company's high-end consulting division, and instant credibility among bankers, says Bruce Richardson, an analyst with AMR Research.

BIG TARGETS. Richardson met with Oracle executives last week and says they made it clear the shopping spree isn't over. "They said most of the deals they were looking at round out specific parts of their application suites around services industries," he says. "They're looking to do surgical strikes in hopes of getting established [in markets such as retail and financial services] before SAP gets dominant."

Oracle is no stranger to India either, Richardson says. While the company doesn't break out employees by geography, it has north of 6,000 employees in India, Richardson estimates.

What's next? The most often talked about targets for Oracle are big companies like BEA Systems (BEAS), Siebel Systems (SEBL), and Hyperion Solutions (HYSL). But as recent deals show, getting a foothold in untapped niches is just as important to the company's ongoing war with SAP. Lacy is a reporter in BusinessWeek Online's Silicon Valley bureau

with Steve Hamm in New York

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