Oracle Declares Victory Over SAP in Retek Grab

By Lisa Vaas  |  Posted 2005-03-09

Oracle Declares Victory Over SAP in Retek Grab

Oracle President Charles Phillips had to admit: Theres a good dose of "nyah-nyah" in the companys recently announced move to pounce on Retek, the retail technology vendor that SAP intended to swallow.

As it is, Oracle Corp. owns just under 10 percent of Retek Inc., the retail software developer that Oracle seeks to acquire for $9 a share, as it announced on Tuesday. Oracles offer trumps SAPs late February bid of $8.50 per share for Retek, or about $496 million in cash.

The percentage of Retek shares that Oracle bought up recently is significant, Phillips told journalists in a conference on Wednesday.

The strategy behind buying up shares was, first, to signal that Oracle was serious about buying the company, with which it had been in discussions since last October.

Were Oracle to acquire more than 10 percent of the company, the Redwood Shores, Calif., database giant would be required to start a tender process—a process that Oracle did not desire.

The move to buy up Retek stock also signals to SAP that the company would need Oracles 9-plus percent if it wanted to acquire Retek, Phillips said.

Either way, Oracle wins—either by acquiring Retek, or by pocketing a fat check from SAP in exchange for its shares, since SAP would have to up the bid well over what Oracle paid for its shares. "If we lose it, well make a ton of money on it," Phillips said. "The satisfaction of having SAP write us a big check" would be huge, he said, as is the satisfaction of presenting another hurdle to Oracles bitter rival.

"SAP believes that integration at the applications level—rather than at the database level—is what will drive competitive advantage for companies looking to align their IT infrastructure in order to respond swiftly to changes in the fast-moving retail market," the companys statement reads. "Moreover, SAP is committed to openness to all databases in the market, not locking customers out of choices. SAP remains strongly committed to the retail industry."

As far as whether it would increase its bid, however, SAP wasnt saying. "Regarding yesterdays announcement by Oracle related to Retek, SAP has no further comment at this time," the statement reads.

Read more here about Oracle CEO Ellisons warning to SAP to watch its step in its competitive techniques.

As far as SAPs superior interoperability goes, thats debatable. A report from Aberdeen Group Inc. cites several reasons why Oracle would be a less disruptive acquirer, including the following: Accenture would likely remain the preferred systems integrator; Oracle would remain the database of choice; Oracle Financials would remain the back-office system of choice; and little to no rationalization of Retek functionality would be required. To read more about the report, click here.

Next Page: Oracles plans for the retail industry.

Oracles Plans for Retail

Phillips said the company has been in discussions with Retek since last October and had planned to acquire the company at some point but became distracted with the PeopleSoft acquisition.

Phillips said that Oracle views Reteks Merchandising System product as the crown jewel in the acquisition. That technology governs how retailers do markdowns, promotions and price changes, along with what they put on sale and how they arrange things in-store.

"If you have that, those decisions drive supply chain, inventory and planning needs," Phillips said. "Its fairly complicated stuff, because there are so many attributes to products. Retek built all that, and the key product is the Merchandising product."

Oracle also would like to use Reteks software to link point-of-sales directly into its property management products. J.D. Edwards and Oracle have the No. 1 and No. 2 products on the market when it comes to property management, and Oracle sees great opportunity to jump into the historically underserved retail market.

That point was underscored by Patrick Piccininno, the CIO and vice president of IT for IHOP Corp., which is an early adopter of Oracles Customer Data Hub technology and which uses various Oracle E-Business Suite modules—Property Manager, Contracts, and Project Management and Project Collaboration—to handle its 1,200 pancake restaurants and 400 franchisees.

Piccininno told that, going into the recent Customer Data Hub rollout, IHOP had no expectations that Oracle—or any vendor, including Siebel Systems Inc.—would have a vertical discipline focused on its business segment.

"I do know, having spoken with my brethren in this space, other CIOs in this industry, one of the biggest reasons why companies like IHOP have not traditionally considered the Oracles and Siebels and SAPs of the world is because of some of these vertical requirements that cant be met by horizontal offerings," he said. "When I peeled back the onion enough, it was my opinion that [Oracles] breadth of solution outweighed its ability" to meet some of the specific requirements of the food retail industry.

Piccininno added, "However, we did have to build some customization: utilization of flex fields, extensions to applications to help meet specific requirements we had that were not served by horizontal solutions. I would agree that it would be certainly advantageous for IHOP or other folks in hospitality or restaurants to have a vertical fit, and I would encourage them to spend more time with the Oracle team to let them understand how were using their tools."

Retek qualifies as a minor acquisition for Oracle. Phillips said that Oracle "could do more acquisitions of this size," even though it has said it is out of the large-acquisition game for a few months. "Probably it will be the summer before we can do anything large, but this is not considered large," he said.

Oracle has gone through a "fairly extensive exercise to determine what industries we want to invest more in," Phillips said. Phase One was to solidify its back-office applications, which it accomplished when it acquired PeopleSoft. Phase Two is drilling down in industries which meet certain requirements, such as being areas in which SAP is not strong. Retail fits that criteria, Phillips said: "Its kind of wide open."

"SAP got their bid in first, but it didnt change the fact that we thought [Retek was] a great fit for us," he said.

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