SAP had originally offered $496 ($8.50 per share) for Retek last month before Oracle stepped in with its surprise bid. According to reports, Retek’s board unanimously favors the new SAP bid, which SAP says its best and final offer. The latest bid represents an 86% premium on Retek’s closing share price on the eve of SAP’s initial announcement that it was buying Retek. SAP’s offer expires at 12:00pm Eastern time on April 1.
Not surprisingly, SAP’s bullish move sent Retek’s stock surging by nearly 12% during yesterday’s early session, suggesting that investors expect Oracle to better it. Oracle earlier announced that has already bought a 10% stake in Retek in the open market.
Knowing the steely grit and determination and substantial ego that outspoken Oracle chief executive Larry Ellison showed during the prolonged and bitter battle to buy PeopleSoft for $10.3 billion, this is a real possibility given the comparatively small size of the Retek deal.
But if Oracle was to respond with a higher tender offer will it be a final knock-out punch or just another incremental rise? Executives at Redwood Shores, California-based Oracle could not be reached for comment yesterday.
One of the things they will be mulling over is the increased $25 million termination fee that comes attached with SAP’s amended offer. According to analyst calculations, this would mean that Oracle would need to offer more than $11.45 per Retek share to cover the penalty charge. The additional charge (up from $15 million) is perhaps a sign that SAP expects Oracle to come back with a counter-offer.
This leads to an interesting question of how high will Retek go for if there is a longer than expected bidding war. The answer could be quite high, since the market for retail software is lucrative and remains relatively untapped by the larger enterprise business applications players.
Retek develops business software that manages sales and tracks financial and inventory data. Its software is being used by some of the largest A-list retailers in the US including Gap, Best Buy and Nordstrom’s. Retek has more than 200 customers and reported revenue of $174.2 million last year.
Both SAP and Oracle have long desired to make greater inroads into retail software market which is estimated to be a $10 billion sector.
While the purchase of Retek makes strategic sense for both companies, some analysts say that Oracle’s interest in Retek was widely known prior to SAP jumping in with is regarded as a preemptive strike.
Industry observers also seem to be split on who would be the better match. Some say that Oracle’s limited presence in serving retailers and the current gaps in its business applications suite would make the company more committed to Retek and avoid product overlap issues that might impact integration down the road.
The retail market is not dominated by any one company, Mr Ellison said in a recent conference call to discuss its counter-bid. It’s a large and available market and we think it’s strategically important for us to pursue.
But capturing Retek’s technology and customers would be an equally good move for SAP to assert its dominance in the business applications market, particularly in the US, after Oracle narrowed after the gap following its takeover of PeopleSoft two months ago.
At the recent CeBit trade show, SAP CEO Henning Kagermann was quoted as saying that retail is an important growth sector for SAP and one which the company is highly committed to pursuing.
