According to the Financial Times, Navision confirmed that talks are underway for "a possible strategic transaction," and requested that the Copenhagen Stock Exchange put its stock on its "observation list."

A deal for Navision would bolster Microsoft's enterprise offerings, particularly in Europe. Last December, Microsoft shelled out $1.1 billion in stock to buy Great Plains Software, a Fargo, N.D.-based enterprise-software company.

Both Great Plains and Navision serve small- and medium-sized companies, but Great Plains lacks a noticeable presence in Europe, which accounted for 79 percent Navision's revenues in the first half of this year. U.S. revenues totaled just 12 percent of total revenues.

Navision reported total revenues of $170 million last year.

Just two months ago, Navision unveiled plans to make a concerted push into the North American market. At its annual resellers conference, Navision CEO Preban Damgaard singled out Great Plains as Navision's target in the U.S. market.

IDC has forecast European enterprise resource planning (ERP) market will grow from $15 billion last year to $24 billion in 2005, with growth by small-and medium-sized businesses leading the way.

Microsoft and Navision are in final talks, according to the FT, with an announcement possible by next week. Navision's board of directors said it would continue to "investigate the merits" of a deal.

Whether the deal would be in stock or cash is unclear, but Microsoft has plenty of cash to spend on acquisitions, with more than $39 billion in cash and cash equivalents.

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Navision was formed after merging with rival Danish software company Damgaard in December 2000. The company has 1,200 employees and 30 offices, mostly in Europe, with 130,000 customers.

The company already has an alliance deal with Microsoft to develop enterprise solutions based on the .Net platform. It offers applications in four main products: Axapta, an e-business application; Financials, a financial-management tool; Attain, an enhanced financial-management tool; and XAL, e-commerce software. Navision Financials and Attain accounted for 61 percent of the company's revenues in the first half of the year.