Oracle to beef up cloud offer with RightNow buy

Mon Oct 24, 2011 2:40pm EDT

A sign is shown at the headquarters of Oracle Corporation in Redwood City, California February 2, 2010. REUTERS/Robert Galbraith

A sign is shown at the headquarters of Oracle Corporation in Redwood City, California February 2, 2010.

Credit: Reuters/Robert Galbraith

(Reuters) - Oracle Corp struck a deal to buy online customer service company RightNow Technologies Inc for about $1.5 billion, sparking speculation of bids for other so-called cloud technology companies that deliver software, data and computing power over the Internet.

Oracle's bid of $43 a share amounted to a 20 percent premium over RightNow's closing price on Friday. RightNow's shares rose 19.3 percent in Monday afternoon trade to $42.89. Oracle shares rose 1.9 percent to $32.74.

Oracle is pushing into the cloud technology market, including sales force automation, human resources and databases.

"RightNow got a very good price from Oracle. I don't see other bidders. Not at this valuation," said Pacific Crest analyst Brendan Barnicle

Started in a spare bedroom by its founder Greg Ginaforte in 1997, RightNow clocked sales of over $185 million in 2010 and competes with bigger rival SalesForce.com Inc and online marketing software maker Constant Contact Inc.

"We believe Oracle's acquisition of RightNow will make it a more direct competitor and formidable threat to SalesForce.com's service cloud offering," Oppenheimer analyst Brad Reback said.

For years, Oracle has been rumored to be targeting SalesForce.com to beef up its cloud offering. Another possible target for Oracle could be NetSuite Inc, which is already partly owned by Oracle Chief Executive Officer Larry Ellison.

However, Rick Sherlund said it is not all about SalesForce.com, as Oracle is trying to broaden out its entire software-as-a-service offerings to make sure they are broadly competitive in the market.

RightNow might have to pay Oracle a termination fee of around $60 million if it accepted a higher bid from another party. The termination fee could be around $18 million if the deal were terminated under some other conditions. A RightNow spokesman declined to comment further on the transaction.

Oracle expects the deal to close in late 2011 or early next year.

MORE DEALS TO COME?

Analysts said Oracle has been buying assets to fill in holes in its cloud offerings in the last year; acquisitions have included ATG, Inquira and FatWire. RightNow's technology helps manage customer call centers and extends support to Web and social networks.

"This acquisition shows Oracle is serious about being in the cloud space," said Susquehanna analyst Derrick Wood. "We, however, do not think it can do it organically and that if it wants to be a formidable competitor it will need to enter the market through acquisitions," Wood said.

Analysts estimated the price Oracle is paying for RightNow amounts to about 4 percent of its total cash and investments.

But the interest in smaller cloud computing companies will not be limited to Oracle, said analysts, Other major technology companies that could be interested include Dell Inc, Hewlett-Packard Co and Microsoft Corp.

Pacific Crest's Barnicle said the RightNow deal is good for the entire sector as it signals a potential wave of acquisitions.

"I think we will continue to see acquisition in the customer relationship management space," said Rebecca Wettemann, an analyst with Nucleus Research.

Shares of Egain Communications Corp, one of RightNow's peers, jumped as high as $7.98 following the news and was still up 8.8 percent to $7.70 in afternoon Nasdaq dealings.

Oracle's acquisition proves that the cloud is a safe place to conduct business and a genuine place for chief investment officers of any corporation to look, said Fahim Siddiqui, chief product officer of IntraLinks Holdings Inc. IntraLinks is a customer of both RightNow and SalesForce.com.

In July, RightNow raised its full-year recurring revenue growth outlook to 27 percent from a previous 24 percent.

(Reporting by Supantha Mukherjee, Yinka Adegoke and Michael Erman in New York, editing by Gerald E. McCormick, Dave Zimmerman, Derek Caney)

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