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Cognos Gives Back Gains

CEO Ashe denies rumors that company is a takeover target.

SAN FRANCISCO - Investors took back some of Cognos' (COGN) prior-day gains Tuesday after the stock jumped on speculation it would be the next software takeover candidate.

Cognos was down $1.60, or 3.2%, to $48.90 in late trading.

Cognos closed at $50.50 on Monday, up 14 % Monday

on news that


(SAP) - Get SAP SE Sponsored ADR Report

is buying

Business Objects (BOBJ)


The price jump caused some analysts to change their ratings to hold Tuesday as the Ottawa company fended off assertions that it is now in play as the biggest standalone developer of business intelligence software. Competitor Hyperion was acquired by


(ORCL) - Get Oracle Corporation Report

in April.

Analysts speculate that


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may acquire Cognos.

"We don't consider ourselves to be an acquisition target," CEO Rob Ashe said Tuesday. "We continue to believe that, in this particular market, independence from

enterprise software systems is an important attribute that customers look for."

Elaborating on the merger, Ashe said he expects SAP to eventually integrate Business Objects' performance management and business intelligence software with SAP's business systems. Such acquisitions "tend to get absorbed into priorities of the mother ship and are viewed as affiliated with that format first and foremost," he said. "Business Objects is going to have to more and more think about how to make its

software work with SAP."

Ashe said he doesn't comment on market speculation about a Cognos takeover. The company's niche in performance management software provides a perceived value to customers if it remains independent of the many enterprise resource planning systems with which it must function, rather than being customized for just one, he added.

Sell-side analysts brushed aside such arguments, saying the company is losing valuable time. "While yesterday we said that the SAP acquisition of Business Objects likely puts Cognos 'in play' and recognize that Cognos may now seek a buyer with some real sense of urgency, we also believe that Cognos may have lost some of its bargaining power," Roth Capital analyst Nathan Schneiderman wrote Tuesday in a note to investors.

"There are fewer potential suitors, and Cognos may feel some time pressure," Schneiderman wrote. He lowered his rating to hold, but raised his price target to $54. Roth makes a market in Cognos.

Jefferies analyst Robert Schwartz also lowered his rating to hold, suggesting the company's difficulty now is the stock price, which already anticipates a sale.

Following Business Objects' acquisition, "Cognos would be the largest stand-alone BI vendor, and perhaps a more likely M&A target," Schwartz wrote in a note Tuesday. But Tuesday's trading range "already discounts the multiples paid by SAP for BOBJ and ORCL for Hyperion." Jefferies makes a market in Cognos.

At Tuesday's trading range, Cognos trades at 24 times 2008 earnings. It expects to have $1.09 billion in revenue for the fiscal year that ends in February. Business Objects expects to have $1.53 billion in revenue for the fiscal year ending in December.