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If Is in Play, Here Are the Possible Suitors

Cost, complementary offerings and competition narrow the field. could be in play, and it has hired financial advisers to field an offer from an unidentified buyer, according to a Bloomberg report on Wednesday. If true, four companies could realistically execute such a deal, given Salesforce’s current market cap of about $44 billion: Microsoft, IBM, Oracle and Google. Salesforce declined to comment.

Microsoft: CEO Marc Benioff attended a dinner with other tech execs for Microsoft CEO Satya Nadella Tuesday night ahead of the software giant’s Build conference in San Francisco, sources tell Re/code. What they discussed is anyone’s guess, but here are a few possibilities.

Salesforce and Microsoft compete directly in the market for customer relationship management software, used for tracking sales contacts, deals and other data related to selling goods. Microsoft’s Dynamics commands a 7 percent share to Salesforce’s 16 percent, according to Gartner. Expanding that reach is one motivation to combine the two. But there’s a lot more to consider.

Since launching Office 365 as a cloud software offering, Microsoft now has a leading software-as-service product that could easily be combined and integrated with Salesforce’s CRM, marketing and other applications. In fact, the two inked what they call a “strategic partnership” last year.

Finally, Microsoft has the capital resources to handle a deal comfortably, with $95.4 billion in combined cash and short-term investments as of March 31. It could consume Salesforce so long as antitrust regulators don’t stand in the way.

IBM: CEO Ginni Rometty has been seeking to rebuild Big Blue around the cloud, divesting billions of dollars’ worth of hardware assets and investing billions in adding cloud computing services and software. Salesforce would be a largely complementary acquisition, as there’s not a lot of overlap in its applications, and those that are similar could probably be combined.

IBM has numerous line-of-business software applications aimed at specific industries like banking or retail that it has transformed to run “as a service,” similar to the subscription software model that is central to Salesforce’s strategy. IBM has also struggled with declining sales of its traditional mainframe computers in the hope of growing new cloud and software businesses to replace them.

With its CRM software, Salesforce competes with SAP, Oracle, IBM and Microsoft. Combined with IBM, it would command about a 20 percent share of the $20 billion CRM software market.

Salesforce has also in recent years branched out into other areas. It has spent about $4 billion over the last four years on acquisitions like ExactTarget, BuddyMedia, the big data startup RelateIQ and the cloud software development firm Heroku. The end result is that Salesforce’s Benioff has assembled a powerful portfolio of cloud software assets that IBM would find attractive as it seeks to reinvent itself.

IBM’s challenge would be a financial one: It has a combined $25 billion in cash, cash equivalents and long-term investments, but it also carries $35 billion in long-term debt. However, it has a very strong credit rating and could conceivably borrow enough to do a deal that would likely be supplemented with IBM shares. On Tuesday, IBM raised the quarterly dividend payment on those shares by 18 percent to $1.30 a share.

Oracle: At first blush, Oracle would be the most likely candidate to buy Salesforce if only for one reason: At the root of Salesforce’s many cloud applications lies an Oracle database. Meanwhile, Oracle is currently in the process of converting its traditional on-premise business applications into ones that run in the cloud.

The two companies compete directly in the area of CRM software: Oracle is third in the market behind Salesforce and Germany’s SAP. Oracle has in recent years made some acquisitions in the areas of marketing and human resources software, some of which overlap with recent Salesforce acquisitions. All those overlaps would probably be too much for antitrust regulators. And if they weren’t enough, here’s another potential red flag for regulators: Oracle CTO and founder Larry Ellison is a majority shareholder of NetSuite, another cloud software company that competes in some areas with both Salesforce and Oracle.

One thing Oracle does have is the capital resources: Its balance sheet had nearly $44 billion in cash and cash equivalents as of Feb. 28 and it just issued $10 billion worth of new debt this week.

Google: For the search giant to make a move into cloud business applications would be a major departure. Its primary play for business users has been Google for Work, a suite of cloud-based applications that compete with Microsoft’s Office 365. Google has sufficient capital — $64 billion in cash and short-term investments — but little reason to buy Salesforce.

(Update: We previously said Benioff and Nadella had breakfast together Wednesday morning; we’ve since learned it was a dinner Tuesday.)

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