The Retek Saga: Oracle 1, SAP 0

Marty Leestma is today a happy man-and also, it might be added, a slightly
bemused one. Happy because this CEO's small Minneapolis-based $174 mn
enterprise retail applications firm Retek, with only 525 people, has been
finally acquired by software giant Oracle for $669 mn, nearly two times its
market value, after a month's intense slugfest with SAP. And, bemused at how
two of the world's largest enterprise software players engaged in a cutthroat
corporate tug-of-war over an entity that might in the long run prove to be a
millstone in the neck for either of the protagonists. However, he is definitely
not complaining, since, as of now, it is neither Oracle's Ellison nor SAP's
Kagermann who seems to be the clear winner in this slugfest, but, as both of
them upped the ante in this fierce month long bidding, it is Leestma who is
finally laughing all the way to the bank.

Notwithstanding what Leestma stands to gain, this intense bidding and counter
bidding between the software behemoths, that lasted for a month, begs one
crucial question: How would getting Retek in the bag provide a fillip to Oracle's
fortunes, and does missing out on it prove to be a major disaster for SAP? (See
table The Tug-of-War Timeline). Analysts believe that coming on the heels of its
more high-profile Peoplesoft acquisition for $10.3 bn, Retek would enable Larry
Ellison to defend his home turf in the North American market against overtures
from the German giant SAP. Admits Ellison, "Our North American applications
business is larger than SAP's, and we intend to defend our number one
position." He also argues that even Retek's customers wanted an Oracle
takeover, primarily, because most Retek applications are built on Oracle's
technology platform. "Retek and Oracle share a vision of applications built
on industry standards like Java, not proprietary programming languages like SAP's
ABAP," added Ellison.

But, it is not just the defense of its North American hegemony that prompted
Oracle to fight it out with SAP over Retek. It was surely influenced by deeper
concerns to emerge as the globally leading enterprise applications player. This
has been Oracle's stated goal for years and it views SAP as the biggest
roadblock to its ambition. Though Retek is a small niche player, both Oracle and
SAP courted it with such intensity because its 200 customers included key retail
names like Target and Home Depot-a vertical that is believed to have
tremendous potential for enterprise applications players. In addition, Oracle
never had the retail presence of SAP, and "this market has big potential,
and therefore winning was more important to Oracle than the price it shelled out
for Retek," feels Jim Shepherd, Sr VP, AMR Research.

Face off: Larry Ellison and Henning Kagermann

On the flip side, some analysts feel that Oracle could rue its Retek
acquisition in the long run. The moot question is how many more things can
Oracle put in the shopping cart-it has already got PeopleSoft, JD Edwards
(which was acquired by PeopleSoft), and with Retek, it is going to put a lot of
pressure on expectations about quarterly earnings. "The act of buying Retek
can be a management distraction for Oracle, though the fact remains that Oracle,
with nearly $6 bn in cash, continues to have mergers and acquisitions on its
mind. Maybe it is a good sign that PeopleSoft is going well, but it is hard to
tell right now," feels Tad Piper, analyst with Piper Jaffray.

Conversely, many of these analysts feel that losing out on Retek could turn
out to be a blessing in disguise for SAP. With its $4.3 bn cash pile still
almost intact, this might give SAP the extra cash and time needed to negotiate a
takeover of an even bigger software player while Oracle is busy trying to make
the Retek deal work. Kagermann himself admits that despite losing out on Retek,
SAP is still looking out at possible acquisitions in the retail, banking, public
sector and high-tech software domains, where it feels there are particular
opportunities to grow. In this scenario, without Retek, SAP now has room to go
after other US software companies with larger customer bases and growth
prospects.

However, all rules of this game would see a 360 degree turn in case there is
any substance to one of Wall Street's strongest rumours of the year, that of
Microsoft finally acquiring SAP. In that case, the world's ninth richest man
Ellison would need to slug out with the richest for the enterprise software
space.

Rajneesh De in
Mumbai