Oracle Counters SAP For Retek

Although considered the leading vendor of applications for the retail industry, Retek had been struggling in recent quarters, primarily because its targeted sector is notoriously stingy.

Last week, SAP offered $8.50 a share, then valued at $456 million. Oracle said it had acquired 5.5 million shares, or about 10 percent of Retek's outstanding shares, earlier this week. Oracle had long been in discussions to acquire Retek. The market was surprised last week to learn that Retek had agreed to be acquired by SAP, rather than Oracle.

"It was the worst-kept secret since at least last April that Oracle wanted to buy Retek," said AMR Research's Scott Langdoc. "But the reality is, at the time Retek was not only ready but needed to be bought because of its financials, Oracle was distracted with PeopleSoft."

It's not distracted any longer. "We think it's strategically important for us to pursue this acquisition," Oracle CEO Larry Ellison told analysts during a teleconference. "Both their products and ours are being built on Java. We think it makes us a much better fit from a technical standpoint than Retek did with SAP. It's also a better fit because Retek's center of gravity is North America. We have more customers in common. Virtually 80 percent of Retek customers run on an Oracle platform. Those synergies are not available to SAP."

Charles Philips, Oracle president, added: "We've been in discussions since last September, and have had a full due diligence team working on the task for months. Given the progress made with the PeopleSoft integration, we can accelerate our efforts for Retek. We've expanded our app sales force substantially, accounts assigned. Our sales reps are engaged. So with all that in place we can roll in the Retek organization as a specialized sales force. The [retail] sector is an incremental opportunity for us. It's a large global market for IT spending, and it's an industry under tremendous pressure to automate."

Many observers had expected Oracle to either counter SAP's offer, or acquire a different retail vendor, such as Tomax. That's because Oracle has no applications for the retail sector. In contrast SAP has already been making strong inroads into the retail market, and planned to use Retek's POS and store management software, for example, to complement its offerings.

"Retail is a fragmented market. To the extent that we can combine our companies and gain additional leverage against others, this makes sense," Jim McMurray, senior vice president of Retail, for SAP America told CRN last week. "We did not buy [Retek] because we thought someone else would beat us to it."

Now the question on evryone's mind is: Will this be the beginning of a bidding war? "It's anyone's guess how SAP will react," said Ellison. "Our reaction will depend on what theirs is."