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Cloud Premiums Fall in SAP's $4.3B Deal for Ariba

NEW YORK ( TheStreet) -- German IT services giant SAP (SAP - Get Report) is buying Ariba (ARBA) for $4.3 billion in a cloud push that puts it out in front of Oracle (ORCL) in the rush to buy up companies with IT services that can be accessed remotely.

Already, SAP cut one of the biggest cloud computing deals in its $3.4 billion December acquisition of SuccessFactors (SFSF).

With Ariba, SAP is now the top aggressor in cloud M&A. However, its $45 a share offer represents a 20% premium to Ariba's May 21 closing price, and that's a sign that premiums for cloud-based acquisitions by SAP and other acquirers in the tech sector may be falling amid increasing competition.
SAP buys Ariba for half the premium of its next biggest cloud deal.

Companies with cloud-based products are increasingly attractive for the likes of SAP, Oracle (ORCL) and IBM (IBM) as they add to product bundles and shift their data and IT services to virtual networks.

Ariba is the second largest cloud vendor by revenue.

Last week, SAP announced the roadmap for its cloud applications business, also called "Saas, or software-as-a-service." The Walldorf, Germany-based company said it will focus on cloud business services to manage people, money, customers and suppliers via its SAP Business ByDesign and SAP Business One offerings.

"Cloud-based collaboration is redefining business network innovation, and we are catching this wave in the early stage of its evolution," said SAP co-CEOs Bill McDermott and Jim Hagemann Snab in a release. "The addition of Ariba will create the business network of the future, deliver immediate value to our customers and provide another solid engine for driving SAP's growth in the cloud."

SuccessFactors is a HR management service, while Ariba is a commerce network.

SAP is targeting Ariba's enterprise and procurement trading network that connects and automates more than $319 billion in virtual commercial transactions among 730,000 companies. "Already today 63% of the world's transaction revenue touches an SAP system. SAP and Ariba will facilitate collaborative commerce within and between companies of all sizes," SAP said.

Ariba shares rose over 19% to $44.78 in Tuesday trading after the deal was announced, while SAP shares fell less than 1% to $58.69. The deal is expected to close in the third quarter.

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