RealTime IT News

SAP Bids on Competition

Officials at SAP announced their intentions to acquire retail software specialist Retek for $496 million Monday.

The deal, approved by Retek shareholders, is still subject to shareholder and federal regulator approval. SAP is expected to file an $8.50 per share cash tender offer to shareholders later this week; officials expect the deal to close in the first week of April. Shares of Retek jumped from $6 at the opening of the market to $8.42 per share at press time on news of the announcement.

Retek's software will find its way into the SAP for Retail software offering, a move that will benefit both companies, according to Al Galgano, a Retek spokesman. He said SAP doesn't expect to cut any of the 525 employees at Retek when the deal is closed.

Leo Apotheker, SAP president of global field operations and executive board member, said about 60 percent of the retail industry's applications are created in-house. He thinks the combination of two retail industry experts like SAP and Retek, as well as an emerging trend by IT departments to invest in commercial software, will convince IT departments in that sector to take a second look at a joint SAP/Retek offering.

"It's a very fragmented market in the retail industry, with many retailers still building their own in-house solutions," he said. "We strongly believe that by combining our efforts, we will have a much more compelling offer and benefit from the emerging trend in the retail industry to move away from in-house-developed applications towards packaged software."

Retek specializes in software and services for the retail industry, such as merchandise operations management, store and multi-channel retailing, supply chain planning and optimization and demand planning. In October 2004, the company released an integrated software suite called Retek Xi to integrate that software under one platform.

For Retek, the acquisition brings stability to the Minneapolis company's operations in the retail market, which Galgano said has its ups and downs. Total revenues in its fourth-quarter 2004 results announced Jan. 27 were down $1.5 million to $39.8 million, with software license and maintenance revenues dropping from $24.3 million in the third quarter to $21.7 million.

"The retail industry is prone to seasonal ups and downs, and IT spending has been very lumpy over the last few years. So in the new combined organization, I think we have the bandwidth and infrastructure now to weather that climate and to be successful in that environment," Galgano said.

SAP will use the acquisition to build up its SAP for Retail platform, a continuation of the company's strategy to expand its software portfolio through acquisitions.

"Following the close of the offer, our primary focus will be to drive merger-related revenue and cost synergies, and to combine the Retek and SAP applications in order to construct a complete, end-to-end solution for the retail sector," said Werner Brandt, SAP CFO.

Retek formerly built most of its software applications on SAP competitor's Oracle JDeveloper platform. But Marty Leestma, Retek president and CEO, said it has worked the past three or four years to move itself off the Oracle platform and onto an open standards base more suited to NetWeaver, SAP's own development platform.

"If you look back the past three to four years, a significant part of our development has been around open systems and Java," he said. "So a lot of our newer offerings in the area of point of sale, store inventory management -- those are all on the open platform. The traditional stuff of Oracle is there, yes, but we've invested a significant amount of money moving forward from that point."