Hyperion: Assessing The Deal All Around

Well, I know what you were thinking: Savitz, what does the Street think about Oracle (ORCL) buying Hyperion (HYSL)? OK, so maybe you weren’t thinking that. Either way, I’m going to tell you.

Basically, you can look at this combination from three angles. One, what does it mean for Oracle, and what do they do after this (you don’t think the Oracle shopping spree is over yet, do you?)? Two, is it good for Hyperion, and is there any chance another bidder might come along? And three, what does it mean for the other companies in the business intelligence segment?

Let’s start with the impact on Oracle. The company has said the deal will be accretive to earnings, which is one reason Oracle’s stock has reacted positively to the news. There isn’t really any surprise that Oracle decided to buy a company in the business intelligence segment; the conventional wisdom was that it was just a matter of time. There was some surprise that the company went after Hyperion, rather than its rival Business Objects (BOBJ), though.

Here’s a rundown on some of the morning commentary, from an Oracle point of view. The bottom line is that it was a good fit, and a decent price:

Patrick Walravens, JMP Securities: Oracle continues to benefit from consolidating the enterprise software market and selling a larger breadth of products into its installed base… We view this acquisition as a positive for Oracle given the proximity of Oracle and Hyperion [it is about 20 miles from Oracle in Redwood Shores to Hyperion in Santa Clara], the complementary nature of their products and the reasonable price paid. The $52 per share represents a 2007 [enterprise value/revenue] multiple of 2.8 versus a multiple of 3.6 that Oracle paid for Peoplesoft and 2.4 that it paid for Siebel Systems.

John DiFucci, Bear Stearns: Oracle is paying 7.8x Hyperion’s maintenance stream, which is a bit richer than prior acquisitions of Peoplesoft at 7.2x and Siebel at 7.3x. However, we still put this in the range of reasonable valuation and believe there are more incremental strategic implications with this deal versus PSFT and SEBL.

Kirk Materne, Bank of America: The deal makes strategic sense, as it will bolster Oracle’s presence with the CFO suite and should augment the company’s current business intelligence portfolio.

Rick Sherlund, Goldman Sachs: Oracle has a clearly stated strategy to build scale by acquiring complementary products and customers bases which it can cross sell a wider range of products to compete with SAP (SAP), IBM (IBM) and Microsoft (MSFT). Hyperion provides Oracle with the market-leading position in the financial analytic applications segment for budgeting, planning and consolidation, and strong strategically important relationships with CFOs and enterprise finance departments… The products are mostly complementary, and Oracle is likely to keep most of Hyperion’s sales force.

So, if it was a reasonable price for Oracle to pay… does that mean Hyperion maybe should have asked for more? At least one analyst thinks so.

Nathan Schneiderman, Roth Capital: In our view, Oracle’s move should be a BIG wakeup call for the financial underperformers in the sector, particularly Business Objects, Cognos (COGN) and SPSS (SPSS); the moral of the story is get the margin up and and up fast or else your shareholders will get screwed just like Hyperion’s. We think the only reason that Oracle is getting such a good price is that Hyperion has a pathetic high teens operating margin. Pared just of G&A expenses, Hyperion immediately becomes a high 20% margin business inside of Oracle and that’s before the other cost and revenue synergies. The deal is a layup for Oracle at just a tad over 10x [free cash flow] (after some simple cost cutting), and we consider it horribly disappointing for Hyperion’s shareholders.

Will there be another bidder? Probably not.

Edward Maguire, Merrill Lynch: In our view, a counter bid would be unlikely from SAP given the company’s preference for internal development and last week’s tuck-in acquisition of Pilot Software. We also think a bid from IBM would be unlikely…while HP’s (HPQ) efforts in Business Intelligence remain relatively nascent and potential synergies unclear.

Will Hyperion’s rivals be next? Maybe.

Christopher Sailer, Goldman Sachs: An Oracle/Hyperion transaction could fuel takeover speculation for other BI vendors including Business Objects, Cognos and Informatica (INFA). However, we believe there is already some takeover premium in these stocks. Without Oracle, there are fewer potential acquirers which could dampen future premiums in BI consolidation.

What’s happening with the stocks?

Oracle is up 22 cents at $16.55; Hyperion is up $8.72 at $15.56.

Among Oracle rivals, SAP is up $1.71 at $47.71 (that is a reversal of a decline earlier in the day); Microsoft is up a penny at $28.18, IBM is down 24 cents at $92.72 and HP is down 35 cents at $39.

Among Hyperion’s rivals, Business Objects is down 76 cents at $35.31, Cognos is up $1.06 at $39.7, SPSS is down 5 cents at $34.52, Informatica is down 5 cents at $12.91. and Microstrategy (MSTR) is off 8 cents at $125.99.