Oracle Doubles Down on the Cloud, Snaps Taleo

As we told you back in December of last year, it was bound to happen. Oracle (NASDAQ: ORCL) has just bought Taleo (NASDAQ: TLEO) for $1.9 billion, or $46 per share.

The transactions is the latest on a wave of smaller cloud-based, software-as-a-service (SAAS) players consolidating into larger but increasingly legacy-bound, on-site business solution providers. Oracle was the one that started the revolution back in October, with the acquisition of RightNow Technologies (NASDAQ: RNOW). It was a move its German archrival SAP AG (NYSE: SAP) would not leave unanswered via its December 3rd SuccesFactors Technologies (NYSE: SFSF).

It was then that Taleo became the focus of attention as the next red-hot acquisition target. The company soared to high of 42.24 on December 9 from a closing of $32.96 the day before SuccessFactors' acquisition from SAP was announced. Since then, shares have navigated a $38-40 range on limited upside following takeover speculation already factored into pricing.

The attention has been hardly undeserved. Taleo has seen impressive sales growth between 18 and 20 percent since 2008. Its sales are poised to reach $325 million when the company reports full year earnings on February 14, as compared to $237 million the year before. Taleo's operating margin is an impressive 12 percent. It serves over 5,000 customers, including 180 S&P 500 companies across 38 languages. With its talent management and succession planning solutions, the company addresses the most important and expensive assets of its customers: people.

Taleo CEO Mike Gregoise is a veteran to Oracle takeovers as executive vice-president of PeopleSoft, who was taken over in a hostile manner by the software giant. Although it is hard to pinpoint his exact feelings on the current deal, he acknowledges that its company model is key to fundamental changes in the software business, something that was bound to lead to consolidation.

“It's a confirmation that the on-demand model is moving into the next phase of its adoption,” he said to AllThingsD back in December, at the height of sector excitement following the SuccessFactors acquisition. “Oracle and SAP are acknowledging that the on-premise solution is running out of gas, and they need to augment that solution with some off-premise cloud solutions,” he noted, perhaps hinting that the eventual suitor was not a total surprise.

In fact, Gregories all but confirmed back in December whatwas announced formally today. When asked by AllThingsD of a highly speculated Oracle takeover, his answer was, “A first-year MBA student could connect those dots. We're positioned to be the only independent full-suite SAAS player in the market right now, and that's a good place to be.”

Indeed, it is a good place to be for Taleo. Today's announced Oracle offer of $46 a share represents a ~15 percent premium on yesterday's closing of $38.94. The deal is subject to approval from shareholders and regulatory bodies and is expected to close by the middle of 2012. It will be interesting to see TLEO price action today, as it may likely make a play for the $46 offer level, which would be a first for the stock. Salesforce (NYSE: CRM) may also see increased volume today, as investors make up their mind on possible competitive impact the deal brings. The same applies to shares of Kenexa (NASDAQ: KNXA) and NetSuite (NYSE: N), which may see renewed vigor on continued consolidation in their sector.