Oracle: Is Amdocs A Target for the Industry Giant?

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Includes: CHKP, DOX, ORCL
by: Shlomi Cohen

Oracle Corp. (NYSE:ORCL) is one software giant that has no time for talk about a slowdown, as the company president and CFO Safra Catz made clear at the company's investment conference last week in the US. "We are going for 20%. If we shoot ahead of it in any year, it is just the way it is. We are not slowing down, and don't expect us to,” she said.

As to the possibility that Oracle's business could be harmed by the crisis at the banks, Catz said that issue was old news, localized to specific banks, and that nothing in recent months has surprised her or led her to revise her outlook from September.

In contrast to the optimistic note that Catz sounded about Oracle's business, investors are apparently quite concerned about the effect the crisis could have on two big Israeli software companies, which are leaders in their respective fields - Amdocs Ltd. (NYSE:DOX), and Check Point Software Technologies Ltd. (NASDAQ:CHKP).

The former hit its 52-week low of under $32 this week, while the latter has lost 19% or $1 billion in market cap in the month since it unveiled its results, and is now close to its own 52-week low.

With regard to Check Point, the fears focus specifically on the fourth quarter, during which weakness in orders from the financial sector, to which the company has substantial exposure, could cause it to miss the analysts' estimates for the quarter, which predict sales of $202 million and earnings per share of $0.44.

I believe the prospect of the stock making a strong rebound could happen even before the company unveils its fourth quarter results if Goldman Sachs upgrades its rating for it.

Its analyst, Sarah Frier, has maintained her "Sell" rating and target price of $24 for quite some time now, and the stock's recent dip below this price to $22 could prompt her to raise her rating on the assumption that the fears that the company could miss the quarter are unfounded.

As for Amdocs, I am wondering whether, after its recent tumble, it could become the next target for the unstoppable team of Ellison and Catz from Oracle, which for the time being has abandoned its bid for BEA Systems Inc. (BEAS). Amdocs' current market cap of just under $7 billion is not much higher than that of BEA, although it clearly will be sold at a substantial premium over this amount.

The notion that Oracle could be interested in Amdocs occurred to me after Oracle saw fit to run an advertisement on Yahoo! finance portal, on, of all places, the page with the quote for Amdocs' stock, on which it compared Amdocs' software to its own.

You will agree that the page containing information on Amdocs' stock price is hardly the ideal spot for Oracle to find potential customers for its billing software at Amdocs' expense. What's more, an advert like this can only worry Amdocs investors, fearful that Oracle could be angling for a chunk of its business.

Ellison is reputed for his military-style takeover methods, namely first you bomb the target and then attempt a takeover by consent, failing which you resort to force, meaning a hostile takeover. Large companies like these usually have a management that opposes a sale to Oracle, but which does not have a controlling interest to back this up, since nearly all the shares are held by the public at large and institutional shareholders.

That's how it was with PeopleSoft (which Oracle acquired in 2004), and there are those who now suspect that it is likely to happen again with BEA, now under attack from Ellison as a company that is not worth the $17 per share he recently offered and which the BEA management turned down.

Amdocs slumped to its current low ahead of its latest results at the end of October and remained there after they were unveiled, as management provided somewhat disappointing guidance for its fiscal 2008, which begins on October 1. A share price as low as this could bring hungry sharks like Ellison swirling around Amdocs' boat.

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

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