March 17, 2005 7:50 AM PST

SAP ups Retek bid to thwart Oracle

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SAP has increased its offer for Retek in an effort to hold its ground against Oracle's hostile counterbid for the retail software specialist.

The German software giant said Thursday that it raised its offer to $11 a share for Minneapolis-based Retek. SAP's bid is 29 percent higher than its original offer on Feb. 28 of $8.50 a share. SAP's latest offer is also 22 percent higher than a $9 counterbid Oracle made last week for the company.

Retek is recommending that its investors accept SAP's higher bid, even though it also includes an increased termination fee of $25 million--up from $15 million--if the parties walk away from the deal.

"We believe that SAP's offer is a good deal for Retek stockholders," Marty Leestma, Retek's chief executive, said in a statement. "And our board of directors has unanimously recommended that it be accepted."

Shares of Retek jumped more than 11 percent in early-morning trading, to $11.71 a share.

SAP's volley puts the bidding ball back in Oracle's court. Oracle is used to dealing with reluctant takeover candidates, as borne out by its two-year bid to acquire PeopleSoft. The database software maker officially closed the PeopleSoft deal in January.

Oracle could not immediately be reached for comment.

SAP and Oracle, two titans in the enterprise software applications industry, are vying for Retek's niche in the retail sector and its list of brand name customers, including Gap, Best Buy and Nordstrom.

Retek's software helps retailers make decisions on how much merchandise to order, how to distribute it among their retail stores and how to track inventory movement.

Oracle, in particular, is hoping to expand its database relationship with some of these retail customers to also include application software, analysts have said.

Price point
Some investors may anticipate that Oracle will increase its current bid, given that Retek's stock is trading above SAP's most recent offer.

But analysts noted that SAP's $11-a-share offer for Retek is on the "rich side," given that the retail software vendor is expected to generate just a little more than $174 million in revenue and have a paltry profit margin of 4.7 percent for 2004.

"You don't get to $11 a share based on the historical performance of Retek," said Tad Piper, an analyst at Piper Jaffray. "You get to $11 a share if you view it as your entry into retail and are confident you can execute. Both companies' confidence level is high."

Whether or not SAP ultimately lands Retek, the German company will come out ahead, said Charles Di Bona, an analyst at Sanford C. Bernstein.

"Either they get the company they want or they force Oracle to pay up and have it be disruptive to (their competitor's) business," Di Bona said.

Analysts said they expect Oracle, more than SAP, to be on the hunt for other retail software vendors if it is on the losing end of the Retek takeover battle.

Oracle tends to snap up companies at a much faster pace than SAP, looking to expand its overall market share and customer base. SAP, on the other hand, tends to take a more measured approach and buys only companies that provide a strategic expansion in a particular industry, Piper said.

 

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