Would you pay $75 for Salesforce.com?

Posted: February 12, 2008 in CRM

I got wind of a rumor yesterday that went like this:  Some high ranking people at Salesforce.com had approached Oracle to gauge Oracle’s interest in buying Salesforce for $75 per share. A reporter wanted to know if I thought that was a good idea. I said ‘no’ and here’s why.

Salesforce’s stock has taken a pounding so far this year losing close to 20% of its value since January. Last time I looked, CRM (the Ticker Symbol for Salesforce.com) was hovering around $50 per share so $75 would represent a 50% premium on the current share price.  Microsoft offered a bigger premium for Yahoo and they don’t even have Salesforce’s commanding market share.

As most adults know, the movement of any single stock’s price is highly dependent on the movement of the entire market. The fact that CRM is getting pounded despite advice the company has given the Street that its revenues would be stronger than originally expected this year is plenty of evidence to support this theory.  So while I see $50 for a share of CRM as a good price (if I am a buyer), I don’t think a lot of people are panicking and wanting to take the $75.

It’s not enough.  Why?

Well, to understand you need to look at a few things. First, Oracle doesn’t need more CRM (as in Customer Relationship Management) applications, they bought up most of the first generation of the remaining CRM companies and at least one on-demand product — Siebel CRM On-Demand. Also, I think Oracle would have problems with the SEC if they tried to buy another CRM company because the rest of the market contains some billion dollar companies who would complain that Oracle had monopoly intentions.  I know we know this already but this is a matter of what you can prove in court and a purchase of Salesforce by Oracle would tip the scales.

What I think would be appealing to Oracle would be Force.com, the application development and hosting infrastructure which will be one of the major architectures of its kind in the years ahead.

Now, it’s hard to value Force.com because it’s so new. But I think you can safely say that it’s worth much more than a $25 premium on the share price. I expect it will be the tail that wags the dog and that the CRM applications of Salesforce will be secondary revenue producers at some point.

Force.com would be something that everyone in the Oracle universe would want to get (Larry would insist) and its revenue potential could be very large.  Bigger than $25 per share which is why the $75 rumored price is too low.

There was also an argument that Larry is getting old at 63 (I believe) and people are wondering how much longer he wants to keep it up. The rumor mongers were suggesting that Marc Benioff might become the heir apparent if the buyout were to happen. I doubt it.  People forget that Larry really, really likes what he’s doing and, unlike Bill Gates, he probably won’t give away his multi-billions in his lifetime — there’s little interest in taking the foundation route.  Larry is a thoroughbred who, on his days off, runs around because it feels good.

On the other hand, Marc has proven himself to be quite an executive, taking Salesforce from startup to IPO without having a job ending dust-up with his board. Not bad at all.  But I don’t think Marc likes what he’s doing in the same way that Larry does. Marc has some extra curricular activities like his foundation, he likes to write books on philanthropy and he shows up at Davos now and then to hang with global leaders. 

Marc’s got a second act coming and it won’t be running a bigger software company than he has right now. He’s young, rich and increasingly well connected with self-made politicos like Arnold the Governator and Michael Blumenthal and who knows who else.  I have seen pictures in his office of Marc with Bill Clinton and Marc with George W. Bush. They are the kind of pictures that are taken for friends — just the two men smiling at the camera, buds. The pics are in black and white and have a timeless quality about them. Marc has a second act coming and he won’t be running a software company, me thinks.

So to sum it up, $75 is too cheap, CRM (the application) is less important than Force.com, the SEC would probably balk, Larry isn’t going anywhere but Marc is though we don’t know exactly where yet. All in all, I’d say the $75 per share deal is an interesting rumor but that’s about it.

Nevertheless, it’s a crazy world so we’ll all be looking for an announcement.

Comments
  1. Louis Columbus says:

    Dennis,

    I hope Salesforce.com stays independent as well and builds out the vision of force.com in addition to its many other initiatives. Like many I fear if it gets sold it will lose its agility and speed of response.

    Selling at $75 a share would be shortsighted and significantly undervaluing the company as well. Just to see how the investment analysts were viewing Salesforce.com I downloaded five reports published by Key Banc, ThinkEquity, ValueEngine, and Wachovia since the beginning of the year. ThinkEquity on January 8th of this year stated a price target of $76 a share, further supporting your point of $75/share being too undervalued. It’s implausible to see Larry Ellison stepping down anytime soon as well, and when and if he does, Chuck Phillips is my bet for the next CEO slot of Oracle.

    Nice post Denis and I really liked your column in CRM Buyer, The On-Demand Diasopra which shows how salesforce.com is the catalyst of so much change in CRM right now.

So, what did you think?

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s