Reports surfaced last week that Oracle was gearing up to buy Citigroup's controlling stake in i-flex.

Under terms of the agreement, Oracle will acquire the 41% share in the Mumbai-based vendor currently held by Citigroup Venture Capital International for around $593 million.

As required by Indian law, Oracle will also make an open public offer to purchase an additional 20% of the shares outstanding from the remaining shareholders at a price of Rs882.62 per share - around six per cent higher than the stock's closing price of Rs829.90 yesterday. Oracle says it will pay a total cash consideration of approximately $316 million if the entire 20% is tendered into the offer.

I-flex stock rose to Rs896.15 today on news of the acquisition.

Subject to regulatory approvals, the transaction is expected to close by the end of 2005.

I-flex was originally an internal Citigroup IT unit set up in 1985. The company was spun off in 2002 and its shares have more than trebled since the listing.

The deal marks significant expansion for Oracle in the banking software market. I-flex's core banking software is the world's best-selling, ahead of systems from companys like Temenos and Misys. The Indian vendor has serviced over 540 customers in more than 110 countries.

Oracle CEO Larry Ellison, says banking is a strategic industry for the database firm, with nine out of the top 10 banks running Oracle ERP applications.

"Oracle's overall application strategy is to go beyond ERP and offer customers richer industry-specific functionality. i-flex gets us there in banking," adds Ellison.

Oracle says the current i-flex management team will continue to run the company and will align product development, sales, marketing, and services activities with its own.

Following the deal, Oracle president Charles Phillips will join the i-flex board.