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Flex Appeal

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DQI Bureau
New Update

Citigroup is disassembling its Mumbai chromosome. As the first chapter of the

approximately $900 mn Oracle buyout deal for top banking solutions vendor i-flex

winds up at $593 mn, Oracle has good reason to smile over the probable returns

ahead by way of Citigroup clientele-who form about 90% of the i-flex customer

base. Citicorp Capital Venture held 49.5% of the equity base at the time of i-flex's

IPO three years ago, and later divested it to 41%.

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Oracle would be more than happy with this 41% Citigroup stake in the Indian

banking major. Here, its decision to buy back an additional 20% stake worth $316

mn by the end of the year from i-flex shareholders is more a case of complying

with India's regulatory laws. A few i-flex shareholders were not keen to cash

out en masse, though the majority of them are expected to swap for margins of up

to Rs 300 per share, when Oracle's buyback offer at Rs 882.62 per share is

floated sometime in September.

On the product side, which brings in 50% of Mumbai-based i-flex's revenues,

Oracle could innovate further with its Oracle financial offerings meshing with

Flexcube, i-flex's superstar product. Flexcube's appeal as the world's

largest selling banking solution lies in its ability to be a conduit for diverse

product offerings-where it can offer a single customer view and provide

automation across multiple delivery channels with differentiated financial

products.

But wrenching out stronger marketshare for Flexcube in India will be a key

challenge ahead. Flexcube has had a tough time wresting platform space from

Infosys's Finacle in the Indian banking space. However, i-flex's strong

mindshare in the Americas, Europe and Africa over the last five years, thanks to

the Citigroup DNA, is primed for Oracle to exploit further.

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The services component, which brings up roughly another 50% of i-flex's

revenues, will present a fresh set of challenges. Integrating it with Oracle

Financial solutions and sorting out middleware incompatibilities will require

time-and money. Oracle's strongest bet would be to make Flexcube work in

tandem with its ERP and other e-procurement solutions for financial institutions

in the smallest possible (or permissible) time window so that existing Flexcube

clients stick with Oracle under the new order of things. Beyond just price

negotiations, this would require a strong alignment with the i-flex top

management. Already, fears abound that the i-flex leadership could go the way of

the PeopleSoft top brass-with Oracle president Charles Phillips set to join

the i-flex board, once the interests of at least one-third of the 575-plus

customers in 115 countries are served.

At a press conference-call, Ellison said that Oracle's overall application

strategy is "to go beyond ERP" and offer customers richer

industry-specific functionality. Let's not forget that with the entry of open

standards players like Day Software and Ascential Software, the niche in content

management and databases occupied by the likes of Microsoft, IBM and Oracle

could be increasingly under threat. So, Oracle's acquisition spree in recent

months and the decision to go beyond ERP is partly from the risk posed by its

open standard competitors.

Oracle's ability to culturally integrate i-flex's 5,500 employees as well

as explain to customers the need to merge Flexcube with their financial

offerings and the benefits accrued to their overall ERP and banking product

offerings will be most crucial, especially in India. With a 60% database market

share, strong assimilation with Indian operations will be a prerequisite to

rebooting i-flex's rather patchy performance over the past few quarters. The

Indian operations of the company stand to benefit further as Oracle adds more

banking and insurance clients in 2005. Flexcube already runs on Oracle Database

10g and Oracle Application Server 10g.

The core issues Oracle will continue to grapple with once the buyout is

completed will be how to flex its database muscle in servicing the expectations

of top-gun i-flex customers like UBS Securities and GE Capital, cutting

operational costs, besides outpacing the competition in the ERP marketplace.

Will i-flex "get it (Oracle) there" in banking? The merger test begins

in right earnest. Even as the flag is set to flutter higher for India's

product development companies.

Ravi Menon

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