Silly Rumor Says Oracle Wants to Buy SAP

Published: February 5, 2007

by Timothy Prickett Morgan

Sometimes, the IT press reports rumors not because we think the rumor will pan out, but because reporting on the rumor is fun. And so it is with the most recent rumor that Oracle is considering a bid to acquire application software rival SAP for 38.5 euros per share.

The rumor, which appears to have come out of the London stock market, was passed around the blogosphere last week and was reported in the London-based IT trade magazine, Computer Business Review.

That rumored acquisition offer by Oracle works out to about $50 a share at the current exchange rates, and it is not much of a premium compared to the price that SAP's ADRs are trading at on the New York Stock Exchange. Prior to the rumor, the shares were at around $49, they shot up to $50 as people considered the rumor, and then fell promptly to around $46. Net-net, the rumor might have helped the German stock market, the DAX, get a boost for a day, but it seemed to have ended up hurting SAP more in the longer run of a week once everyone figured out that such an acquisition would be nearly impossible.

For one thing, SAP is worth more than $15.4 billion, which this rumored Oracle takeover deal values SAP at. As of Friday, SAP had a market capitalization of $14.2 billion, and that is with the market having already absorbed SAP's plans to spend money over the next two years to attack the midrange with its future "A1S" product line, due this quarter. It is hard to say what premium SAP could fetch, but it is a lot higher than what this supposed Oracle bid is offering. (Oracle low-balled the PeopleSoft acquisition, too, at least initially.)

For another thing, if Oracle bought PeopleSoft, it would have a lock on the market for enterprise-class ERP suites, leaving only Infor, Microsoft, and Sage Software as the next largest competitors in the ERP software space. It is hard to imagine antitrust authorities on both sides of the Atlantic agreeing to such a union. Even if Oracle agreed to split itself into two companies--one that does database and middleware software, another that does applications--it would be hard to see how the antitrust authorities in the United States and Europe would go for the deal. That application software company would still dominate the enterprise ERP market.

It is much easier to imagine IBM, Microsoft, or Hewlett-Packard acquiring SAP. In fact, it is easier to imagine Siemens, General Electric, Google, or a small band of alien private equity investors from Jupiter's most interesting moon, Io, doing a deal to buy SAP.

SAP naturally belongs in IBM's Software Group, being the creation of ex-IBMers, having such an enterprise focus, and needing so much services to be implemented. Why SAP and IBM don't just get on with it is the real mystery.

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