Oracle's Bid For Retek Counters SAP OfferOracle's Bid For Retek Counters SAP Offer

After filling out its back-office application product line through its PeopleSoft acquisition, Oracle is turning its attention to applications that cater to vertical-industry needs. The company last week offered $525 million to acquire retail-management-software vendor Retek Inc. in what Oracle president Charles Phillips called "phase two" of the company's application strategy.

Oracle's $9-per-share bid for Retek came just a week after Retek agreed to be acquired by SAP America Inc., the North American subsidiary of Oracle's archrival SAP, for $8.50 per share, or $496 million. Under that deal, SAP has three days to make a counteroffer should Retek's board decide any other offer is superior.

As of late last week, Retek had not responded to Oracle's offer, but analysts predict a bidding war. "There's no logical price for Retek. We're already above that. It's the strategic value of Retek that's important," says Jim Shepherd, an AMR Research analyst.

Retek is drawing a lot of interest because there's growing demand for packaged retail applications as retailers shift away from building custom software, Phillips said in a teleconference. Retek's "crown jewel" is its merchandising application that retailers use to decide what products to stock and what prices to charge, he added.

"A lot of customers have told us they would rather see Retek in our hands than SAP's hands," Oracle CEO Larry Ellison said in a conference call disclosing the buyout offer. "The combination of Oracle and Retek would certainly put us in a strong position to exploit a market that is underpenetrated."

SAP has a history of success with its vertical-industry strategy, particularly in manufacturing. "Vertical markets are one of the keys to success in business applications," Gartner analyst Jeff Woods says. Retek's customer base, of which about 60% to 70% is in North America, would complement SAP's strength in retail applications in Europe, he says.

But Oracle executives argued that Retek is a better fit for their company. About 30 Oracle customers already integrate Oracle's financial, accounts-payable, and general-ledger applications with Retek's software, and Oracle likely would "productize" those links if its buyout effort is successful, Phillips said.

Oracle executives contend that an Oracle-Retek combination also makes sense because most of Retek's applications have been built on Oracle's technology platform using Oracle development tools. About 80% of Retek's customers run on Oracle's infrastructure software such as its application server, according to Oracle.

SAP issued a brief statement March 9 saying the interoperability of its products with Java and .Net architectures puts it in a better position to offer Retek users "a swift and painless path" to integration with SAP applications.

Oracle and Retek have been discussing an acquisition since October, Phillips said, but those talks were interrupted when Oracle bought PeopleSoft in January. "So this isn't Oracle reacting to SAP. It's been in the works for some time," he said.

Before announcing its offer, Oracle purchased 5.5 million shares of Retek common stock March 7 and 8, representing about 10% of the company's outstanding shares. That signaled that Oracle's bid was serious, Phillips said, and gave it a "tactical advantage" should SAP continue its acquisition efforts.

with Laurie Sullivan