Oracle Parries a SAP Thrust

By Jim Kerstetter Oracle CEO Lawrence J. Ellison is at it again. Just two months after the database giant finalized the $10.3 billion hostile acquisition of rival software maker PeopleSoft, Oracle (ORCL) on Mar. 8 announced a surprise bid for retail software maker Retek (RETK). The $9-per-share offer comes just eight days after German software giant SAP (SAP) said it planned to acquire Retek for $496 million.

Oracle's $525 million bid is 50 cents per share higher SAP's offer. Ellison makes no bones about his intentions to fend off SAP, saying Oracle intends to protect its market share in North America, where its business applications sales are strongest. "We evaluated SAP's bid to acquire Retek carefully -- and we decided that we were going to make a bid ourselves," he said in a conference call with analysts.

LENGTHY PREPARATION. Clearly, the fight between the world's two largest makers of run-the-business corporate software is getting a lot nastier. In January, just as Oracle was ending its 18-month pursuit of PeopleSoft, SAP acquired a small San Francisco consulting company called TomorrowNow, which specializes in poaching lucrative software-maintenance contracts from PeopleSoft. Now, SAP can use that little outfit's expertise to win those contracts away from PeopleSoft's new owner, Oracle. SAP declined comment on Mar. 8.

It appears that Ellison is returning the favor. While SAP execs may be surprised by Ellison's latest move, it wouldn't have come as a shock to the folks in Retek's Minneapolis headquarters. Last September, Oracle and Retek talked of a merger, but nothing came of those discussions, Oracle President Charles Phillips said in the conference call. Retek executives couldn't be immediately reached for comment.

However, Oracle kept a "due diligence" team working for months on a Retek integration plan. Ellison said he has talked with Retek CEO Marty Leestma several times, including one call just hours before Oracle went public with its bid.

"We feel the deal is customer-friendly. We feel the deal is employee-friendly -- and a much better value" than SAP's offer, Ellison said. While they were talking with Retek, Oracle execs knew the Minnesota outfit was in discussions with another potential suitor, but they didn't know which one it was.

RETAIL SPECIALIST. So why didn't Oracle make an earlier offer? Ellison says once the deal for PeopleSoft looked like it was going to close, his execs focused their efforts on integrating it with Oracle, allowing SAP to swoop in and make its own offer for Retek. Oracle struck back over the last few days, quietly acquiring 10% of Retek's outstanding shares.

Now, Ellison wants the rest. Compared to PeopleSoft, which had more than $2 billion in annual sales, Retek represents a mere pittance. It has about 525 employees, and last year it boasted an $8.2 million profit on $174.2 million in sales.

While its software, which is used to manage inventory and merchandise at big retailers like Best Buy (BBY), has virtually no overlap with Oracle's existing product line, Ellison says it should be compatible from a technology point of view. Moreover, he said the deal is so comparatively small that it shouldn't prevent Oracle from making other big acquisitions over the next year.

CONFUSION? But Oracle watchers wonder if Ellison is putting too much on his plate. "There's still a lot to digest -- and a lot of questions about product, technology, direction," says Joshua Greenbaum, principal analyst at the tech researcher Enterprise Applications Consulting. "Adding Retek to the mix would potentially confuse customers and stretch Oracle's acquisitions team to the utmost."

It could also spark a bidding war. While SAP's bid represented a 42% premium on Retek's Feb. 25 closing price, Oracle's competitive offer should goose share prices even further. In after-hours trading immediately after the offer was announced, Retek shares jumped 16.9%, to $10.04.

Leave it to Ellison to light another fire under the otherwise quiet world of business software. Kerstetter is Technology editor at BusinessWeek Online

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