Playing Another Round of Oracle Wins

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 hereto 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.

Reteks struggles

These factors are also a reason why Retek finds that it has to look for a buyer rather than continue to develop its products as an independent company, Tohamy says.

The company has been struggling financially, and it looks like it would be very difficult for the company to keep growing as an independent company, she notes.

Furthermore, Retek is facing increasing competition in its market, Tohamy said, from the likes of JDA Software Group in the retail applications field and from companies selling best-of-breed retail analytics applications such as DemandTec.

Its understandable that Oracle was likely surprised by the SAP bid for Retek because its had a lot on its hands with the protracted campaign to buy out and integrate PeopleSoft into its operations.

Oracle claims that it has been talking to Retek about an acquisition since last September.

Reteks board of directors has endorsed the latest SAP offer to its shareholders and seems less than eager to fall into Oracles hands, probably because Reteks managers see the prospect for greater autonomy at SAP than they could expect after being assimilated by the Redwood Shores Borg.

But since Oracle still has more than $9 billion cash in its coffers, a Retek acquisition represents relatively small change for a company that spent $10 billion to buy PeopleSoft.

/zimages/7/28571.gifTo read more about why Aberdeen Group thinks Retek customers will be served best by an Oracle buyout,click here.

Analysts at the Aberdeen Group have issued a report that customers would likely face the least disruption if Oracle wins its bid for Retek because there is little overlap between the two companies product lines and because Reteks products are already integrated with Oracles database technology.

But even this argument may not be enough to persuade Retek to accept Oracles latest bid and forgo a time consuming proxy fight.

eWEEK.com Enterprise Applications Center Editor John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at john_palatto@ziffdavis.com.

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