Microsoft, SAP Discussed Potential Merger

UPDATED: Oracle is expected to disclose merger talks between rivals SAP AG and Microsoft Corp. during its trial with the U.S Department of Justice.

Its not just about Oracle Corp. and PeopleSoft Inc. anymore.

During Oracles trial with the U.S Department of Justice to defend its hostile, $7.7 billion takeover bid for PeopleSoft, Oracle is expected to disclose merger talks between rivals SAP AG and Microsoft Corp., according to a statement released today by Microsoft.

The trial starts today in a San Francisco federal District court.

Microsoft said in its statement that it would, in this one instance, depart from its traditional "no comment" stance when it comes to any potential acquisitions. The company confirmed that late last year it approached SAP, of Walldorf, Germany, to discuss the possibility of a merger.

Those talks ended a few months ago, according to Microsoft, when it became clear that a merger between SAP and Microsoft would be too complicated—both in terms of the transaction itself, and the integration of the two companies.

There are no intentions to resume the merger talks, according to Microsoft, of Redmond, Wash., but the conversations did lead to a deeper relationship between Microsoft and SAP.

During its annual Sapphire conference in New Orleans last month, SAP announced the fruits of its merger discussions with Microsoft.

During SAP CEO Henning Kagermanns keynote address, the company played a video in which Bill Gates detailed a roadmap for deeper integration between Microsofts .Net and SAPs NetWeaver integration platforms.

Essentially, the two companies agreed to jointly develop software that would enable SAP developers to utilize Microsofts Visual Studio .Net environment—a move that will increase access to both .Net and NetWeaver functionality.

Microsoft and SAP announced several deliverables, including a beta program that will begin this summer that enables ASP .NET developers to customize and extend SAP applications, and version 2.0 of SAPs .Net Connector, due in August, which will include better language support for Visual Basic .Net and better integration with Visual Studio .Net.

A merger conversation between both companies may be a key point in Oracles defense against the Justice Department.

SAP is the No. 1 enterprise resource planning software developer, with over 20,000 customers. It provides software to some of the worlds biggest companies in a number of different verticals and, over the past couple of years, has been working hard to reach small and mid-market customers.

Microsoft has also been building out its SMB applications division over the past two years, starting with the multibillion-dollar acquisitions of Great Plains and Navision software development companies. However, Microsoft does not provide applications to enterprise customers.

/zimages/2/28571.gifBefore MS and SAP went public with their negotiations, Baseline was hot on the trail. Click here to read about what the deal could mean.

During the trial between the Justice Department and Oracle, the Justice Department will attempt to block Oracles merger with PeopleSoft by showing that the combination would be harmful to competition in the upper tier of the ERP (enterprise resource planning) software market, which is comprised of SAP, Oracle and PeopleSoft.

Oracle will defend the proposed acquisition by attempting to prove that the competitive playing field is much larger and includes Microsoft and a host of other applications providers.

Next page: The Microsoft twist.