Oracle One-Ups SAP

The database giant will launch a sweeter tender offer for Retek.
By Bill Snyder ,

Updated from 12:25 p.m. EST

Enthusiastic investors pushed up shares of

Retek

(RETK)

more than 20% Wednesday, as

Oracle

(ORCL) - Get Report

attempted to snatch the independent software maker from the grasp of rival

SAP

(SAP) - Get Report

, which started the bidding war last week.

Oracle will make an offer of $9 a share, or $525 million for Retek; SAP, the only company with a larger market share in the global software applications market than Oracle, last week made an offer of $8.50 a share, or $496 million, for the company.

Oracle announced its intention to acquire Retek after Tuesday's closing bell, and by Wednesday morning, shares of Retek took off. In recent trading, Retek had gained $1.83. or 21.3%, to $10.42 a share, while Oracle and SAP each gained a few pennies.

Oracle CEO Larry Ellison, fresh from his lengthy, and ultimately successful fight to acquire PeopleSoft, explained his rational for the takeover of Retek, quite simply: "We intend to defend our number one position," amongst applications vendors in North America.

Indeed, some analysts say Retek is more important to Oracle than it would be to SAP. "There is a potential for significant lost maintenance and incremental license revenue for Oracle, and the $504 million price tag is less than what the vendor could lose over time if large retail firms migrate to SAP, said analyst Martin Schneider of The 451 Group, a New York-based technology analysis firm.

There has been speculation since SAP made its offer that Oracle would counter, and on Monday and Tuesday of this week, Oracle purchased 5.5 million shares of Retek common stock, representing nearly 10% of total shares outstanding. The company will make a tender offer Wednesday morning, the database giant announced after the close Tuesday.

Shares of Retek closed Tuesday down 30 cents to $8.59. In after-hours trading immediately following the announcement, Oracle shares were off 12 cents to $13.50. The stock closed the day with a gain of 2 cents to $13.50 a share.

Retek specializes in software that helps retail companies to perform numerous activities including inventory and order management, point of sales operations and more -- areas that SAP has attempted to enter several times with only limited success.

Oracle and Retek have been partners since 1986, providing systems to many of the world's largest retailers, and last September Oracle and Retek began discussions about combining the two companies, Oracle said. Asked how he let SAP get ahead of him, Ellison said that Oracle had been somewhat distracted by the task of integrating PeopleSoft into the larger company. But he quickly added that the bulk of that task has been completed, and his team has already prepared a detailed plan to bring Retek into the fold.

"The Retek customers I've talked to said they'd prefer that Oracle buy Retek," said Oracle President Charles Phillips. "The vast majority of Retek customers already have a strong Oracle relationship."

Oracle has contacted Retek's management and has delivered to Retek's board a letter indicating its interest in concluding an agreement, along with the details of its offer.

Compared to the $10.3 billion purchase of PeopleSoft, the Retek offer is tiny, but Sanford Bernstein analyst Charles Di Bona said it "raises some questions." Not the least of which, he said, is the task of integrating yet another set of programs into Oracle's base, which now includes PeopleSoft and J.D. Edwards, acquired by PeopleSoft in 2003. (Di Bona's firm does not have a banking relationship with Oracle.)

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