SAP to buy Business Objects

SAP Agrees to Buy Business Objects in Biggest Strategy Shift
By Kenneth Wong and Rudy Ruitenberg

Oct. 8 (Bloomberg) -- SAP AG, the world's largest maker of business-management software, agreed to buy Business Objects SA for more than 4.8 billion euros ($6.8 billion), the biggest purchase in its 35-year history.

SAP will offer 42 euros in cash for each Business Objects share, 20 percent more than the closing price on Oct. 5 in Paris, SAP said in a statement late yesterday. Business Objects, based in the Paris suburb of Levallois-Perret, is the world's largest maker of software to track corporate databases.

The deal marks a departure from Walldorf, Germany-based SAP's strategy of relying on organic growth and making smaller so-called ``tuck-in'' acquisitions. Oracle Corp., SAP's largest rival in the software that helps companies manage processes such as billing and payroll, spent more than $25 billion on purchases since 2005, making it the most acquisitive company in the software industry.
``That's a dramatic shift in strategy,'' said Thomas Hofmann, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany, who has a ``buy'' rating on SAP shares. ``They're really moving toward the direction of Oracle and maybe that's because they're feeling Oracle is coming closer.''

Business Objects's management board supports the ``friendly takeover'' and plans to recommend the offer to shareholders subject to certain regulatory requirements, SAP said. The company will finance the purchase using available cash and borrowings.

Earnings Effect
The deal will increase SAP's earnings per share under U.S. accounting standards starting in 2009, SAP said. It will be ``dilutive'' to earnings per share ``by mid single digits'' euro cents in 2008, the company said. SAP said it expects the transaction to be completed in the first quarter of 2008.

SAP Chief Executive Officer Henning Kagermann said as recently as last month that he wasn't under ``any pressure'' to make a large acquisition.

``It's the unique combination of two market leaders,'' Kagermann said on a conference call yesterday. ``We like the open-ended, independent business-intelligence platform of Business Objects. We found out in our talks with Business Objects that we can enter the market directly.''

Kagermann's biggest purchase to date was the acquisition of TopTier Software Inc., an unprofitable maker of Internet software, for $400 million in 2001. In 2005, Oracle outbid SAP on retail-software maker Retek, paying $643.3 million. SAP spent about 500 million euros last year on acquisitions. Its biggest purchase so far this year is OutlookSoft Corp., a maker of software that helps companies make financial forecasts.

Business Performance
Business Objects ranks ahead of Cognos Inc. and Hyperion Corp. in the market for business-intelligence software, used by companies to extract data from across departments to help managers analyze business performance. Oracle bought Hyperion for $3.3 billion earlier this year.

The French company made at least eight takeovers in the past two years to add to its business-intelligence software. In April, it agreed to buy Cartesis SA for 225 million euros for its financial reporting software.

Business Objects customers include Adecco SA, Boeing Co., Walt Disney Co. and Unilever NV. The French company's latest version of its data-tracking and mining software is called BusinessObjects XI and was introduced in January 2005.
Business Objects shares rose 4.7 percent on Sept. 17 after Le Figaro reported the company hired Goldman Sachs Group Inc. to find a buyer. The newspaper mentioned SAP as the top candidate among five potential bidders.

Preliminary Earnings
Business Objects said late yesterday its third-quarter sales were between $366 million and $370 million, and earnings per share were 4 cents to 6 cents under U.S. accounting rules. License sales, an indicator of future revenue from maintenance and consulting, reached $137 million to $139 million. The company didn't provide year-earlier comparisons.

License revenue was ``below expectations'' and caused a shortfall in earnings, Chief Executive Officer John Schwarz said in the statement.
The French company reported in July that second-quarter net income more than doubled to $21.6 million from $7.9 million euros a year earlier, boosted by demand for its products in Europe and the acquisition of Cartesis in France.

In the three months through June, operating profit more than doubled to $33 million from $13.5 million as sales and marketing costs as well as research and development spending increased at a slower pace than sales. Business Objects' operating margin rose to 9.1 percent in the quarter from 4.6 percent a year earlier.

Second-quarter sales rose 23 percent to $363 million, while license fees, an indicator of future revenue growth, jumped 21 percent to $149 million. The company forecasts full-year sales of between $1.52 billion and $1.53 billion.

Shares Gain
SAP shares rose 1.5 percent to 41.63 euros in Frankfurt on Oct. 5, bringing the gain to 3.4 percent this year and valuing the company at 52.8 billion euros. Business Objects shares rose 3.6 percent to 35 euros on Oct. 5 and are up 18 percent this year.

Business Objects CEO Schwarz said in June he wasn't interested in a takeover by Oracle, SAP or Microsoft Corp. because customers prefer an independent company whose software can be used across different systems.

In September 2005, Schwarz replaced the company's founder Bernard Liautaud, who remained chairman. Prague-born Schwarz holds a Canadian passport and was previously president of Symantec Corp., the world's biggest maker of anti-virus software.

SAP was founded by five former International Business Machines Corp. employees.