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March 22, 2005

Oracle wins out over SAP in Retek takeover

SAP has dropped out of the bidding for retail software vendor Retek, leaving Oracle as the victor in this short but sharp bidding war. Reversing its previously pro-SAP position, the Retek board of directors announced late Monday night that it has signed a definitive merger agreement with Oracle based on its offer of $11.25 per Retek share.

By CBR Staff Writer

In a statement Oracle CEO Larry Ellison said: Oracle has the largest applications business in North America, and we intend to expand that leadership position. Combining Oracle with Retek is an important step in that direction, and it strengthens our position in the retail applications market globally.

SAP made the first move on Retek offering $8.50 per share, which was accepted by the Retek board, but Oracle came in with a $9 per share bid. SAP made what it described as its best and final offer of $11 per share late last week, which was also accepted by the Retek board, but within hours Oracle had come back with $11.25.

The deal is worth around $631 million, but Oracle may also have to pay a $25 million break-up fee relating to the SAP/Retek agreement, which SAP increased from $15 million when it made its $11 offer.

Oracle and Retek have been in partnership since Retek was founded in 1986, with Retek’s products developed on Oracle’s technology platform. According to Oracle, nearly 80% of Retek’s customers run their applications on an Oracle database.

Prior to Retek’s acceptance of Oracle’s offer, opinion among financial analysts was split as to whether SAP would stop at $11, with the consensus being that it could afford to go higher but might choose not too.

Commenting on its decision to withdraw, SAP was reported as saying that expansion must happen at a price that does not cause damage to SAP’s good financial performance.

SAP chief executive Henning Kagermann said in a statement: As a responsible investor, SAP made an appropriate offer. Neither SAP’s investors nor the present and future customers in the trade segment would have benefited from a further bidding battle and nor would it in the long term have brought the success that we expect.

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He hinted that the company would look elsewhere for opportunities however, saying that SAP was confident that it would expand its market position in the sector.

Retek customers should have a fairly easy transition due to the heavy reliance on the Oracle database, but also because Oracle is still preoccupied with integrating its $10.3 billion PeopleSoft purchase, so interference may be limited to start with. The deal is positive from Oracle’s perspective because Retek brings vertical retail market applications which are lacking in the Oracle portfolio and a 200-strong but technology-light customer base ripe for cross selling.

As far as SAP is concerned, the loss of Retek will be a blow because it would also have benefited from the customer base and related selling opportunities and would have provided access to the US retail market where its presence is patchy. However, it does have retail-specific modules within its portfolio so it can continue to target the sector while looking for acquisitions among the other players in the fragmented retail market, albeit with the risk that Oracle may try to prevent further proposed purchases.

The market opportunity around the retail industry is valued at above $10 billion annually. It has not spent heavily on technology compared to other sectors but increasing commoditization, lower margins and the emergence of giants like Wal-Mart are acting as drivers for belated technology spending.

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