Playing Another Round of Oracle Wins

Opinion: While Retek is looking pricey at $11.25 per share, look for Oracle to spend whatever it takes to acquire this small producer of retail application software.

Retek Inc., a struggling producer of retail applications software, seems an unlikely target of a bidding war between SAP America and Oracle.

But there is no accounting for Oracles determination not to be stymied in its effort to buy out Retek, which it has been courting for months.

The question now becomes whether good business sense or vanity will prevail in this bidding war for Retek, which has seen its value balloon from $495 million based on SAPs original bid of $8.50 a share to $656 million based on Oracles latest offer of $11.25.

That would appear to be a rather expensive offer for a company that will bring to the winning bidder an estimated 200 retail industry customers.

That means that each one of those clients has to be worth at least $3.2 million in future revenue.

Whoever ultimately succeeds in acquiring Retek will definitely have to focus on customer loyalty to make this deal pay.

Customer loyalty is apparently already a factor since about 80 percent of Reteks customers run their applications on the Oracle database and 30 percent are using Oracle or PeopleSoft applications.

Oracle has a strong interest in keeping these customers happy with its products and far away from SAPs blandishments.

/zimages/7/28571.gifClick here to read more about why Oracle raised its latest bid for Retek.

But it appears that even if SAP raises its bid yet again, Oracle will no doubt be prepared to go an additional 25 cents higher in its determination to win.

SAP has already said that $11 is its best and final offer.

But recent history has shown, at least in case of Oracles acquisition of PeopleSoft, that there is no such thing as a final offer if circumstances dictate that you dig deeper to win over a buyout target who is playing hard to get.

However, a higher bid is unlikely and would be out of character for SAP, which has shown itself to be averse to growth through acquisitions, said Forrester Research Inc. principal analyst Noha Tohamy.

Oracle will likely win the bidding war because it is more determined, more stubborn, and because it wants those 200 additional retail clients, said Tohamy.

Buying Retek would be a "good launch pad for them in retail because it is a very challenging market," she said.

SAP wants Retek because the company "has been trying to get into retail space, and not very successfully, for the last couple of years," says Tohamy.

The retail market is a tough nut to crack, Tohamy says, because it is full of very hard-nosed buyers and negotiators when it comes to investing in new computer technology.

Profit margins tend to be so narrow in retail industry that they "dont spend a lot of money on anything—they really take their time to understand new technology developments, and they concentrate on getting the best return as possible on their technology investments," she said.

Next Page: Reteks struggles.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...