Retail Apps Drove the Retek Buyout

When Oracle took over its former partner last month, beating back SAP, it demonstrated an understanding of the growing importance of retail applications. (

When Oracle bought retail-software specialist Retek last month, it learned a $670-million lesson about the new importance of retail software and its own inadequacies on the POS front.

According to new SEC filings as well as interviews with executives, attorneys and consultants on both sides of the battle, the battle for control of Retek Inc. was inadvertently influenced more by PeopleSoft than anything else.

After a multiyear OEM resale relationship between Oracle Corp. and Retek that started in 1998 and ended in either 2001 or 2002, Oracle and SAP AG were actively in talks with Reteks board as of September 2004 to acquire Retek. But Oracle bowed out of those talks in December, citing the extreme distraction of the PeopleSoft acquisition and integration.

In the meantime, SAP plunged ahead. In November, it had offered to pay a per-share price of between $6.75 and $7.25.

By mid-January, SAPs chief financial officer, Werner Brandt, said SAP might go as high as $8.40 per share, but he "firmly rejected" a Retek board request to consider offering $9, according to an Oracle SEC filing. Note: By mid-March, SAP was offering $11 per share, only to be beaten by Oracle with an $11.25 winning bid.

But PeopleSoft did more than convince Oracle not to pursue Retek in December. As Oracle started absorbing PeopleSoft, it realized that it now owned roughly 400 new retail accounts. All of a sudden, owning Retek made even more sense.

This is all part of what some Retek insiders describe as a growing Oracle awareness of two market facts: Retail is really important; and retail-specific apps are really difficult to do well.

To understand the emotional and political dynamics at play in this battle, its necessary to explore what happened when the two companies parted ways, back when Oracle was reselling Retek software.

Resale deals between companies like Oracle and Retek are never expected to last forever, so its not necessary to find a major falling out to explain the pact being dissolved.

But there was certainly a concern from some at Retek that Oracle at the time didnt appreciate the importance of the retail vertical, nor the difficulty in servicing it. In this context, servicing retail doesnt mean selling operating systems or business databases or payroll platforms. It means providing the kinds of retail-specific apps—such as POS, supply chain and merchandising—that Retek did all day.

"Retail was not a priority for [Oracle] at the time. It was more of an afterthought," said Al Galgano, who was Reteks vice president for investor relations and corporate development at the time of the acquisition. "It just wasnt a partnership arrangement that worked. It was more of the focus of an Oracle versus Retek. The focus was different and it didnt match up at the time."

But as Oracle worked through the PeopleSoft integration and "found themselves with [an additional] 400 retail clients," it started to hear the cha-chings of the registers from all of the cha-chings of registers.

/zimages/4/28571.gifClick here to read more about Oracles increase in earnings due to its acquisition of PeopleSoft and Retek assets.

Historically, Oracle "has had two different businesses: technology and applications," said another Retek executive, Duncan Angove, who served as Reteks chief strategy officer. "Only recently have applications come to the forefront. The need to have industry specialization has [recently] risen to the top."

Another bit of industry that is critical background for this saga is the long-standing competition between Oracle and Retek against SAP. "There has always been an understanding of a common enemy: SAP," Angove said. And a common enemy is what helped Oracle and Retek work well together while they did.

/zimages/4/28571.gifRead more here about Oracles plans for Reteks future.

It should be noted that Oracle and Retek continued to cooperate on multiple levels even after the formal resale relationship ended. As Oracle execs are fond of pointing out, Reteks products have been developed on Oracles technology platform using Oracles development tools. Nearly 80 percent of Reteks customers run their Retek applications on the Oracle database.

So as this retail-app specialty awareness grew—lodged atop a well-aged dislike of SAP—it forced Oracle to make a strong fight for Retek control by March.

The Retek board had a strict confidential agreement with SAP that prevented Retek from briefing Oracle on their negotiations. But once the SAP-Retek deal was announced on the last day of February, Oracle quickly moved in to counter and outbid SAP.

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