SAP defends Business Objects deal

Chief Executive Officer of SAP Henning Kagermann attends a news conference in New Delhi, August 28, 2007. Software maker SAP defended its 4.8 billion euro ($6.8 billion) deal to buy data mining firm Business Objects as analysts questioned the high price and investors pushed down its shares.

FRANKFURT (Reuters) - Software maker SAP (SAPG.DE) defended its 4.8 billion euro ($6.8 billion) deal to buy data mining firm Business Objects BOBJ.PA BOBJ.O as analysts questioned the high price and investors pushed down its shares.

SAP said the move was neither a reversal of its policy to make only small, bolt-on acquisitions nor a reaction to an aggressive buying spree by rival Oracle (ORCL.O). It said more purchases would make sense in some areas.

The agreed deal will join market leaders in software that helps large enterprises integrate and automate areas such as supply chains and human resources, from SAP's side, and software to mine data for business intelligence from Business Objects.

The deal and apparent shift in strategy took market players off guard.

"We are surprised that SAP always repeated its mantra of organic growth and finally decided to acquire Business Objects," UniCredit said in a note to clients.

SAP shares closed down 4 percent in Frankfurt at 39.95 euros in trading volumes three times the daily average for the last 90 days -- by far the leading decliners in the German DAX index.

"We regard the deal as more risk-enhancing which also comes with too high a price," wrote German bank Sal. Oppenheim as it downgraded SAP to "neutral" from "buy".

Shares in Business Objects, which rallied on takeover speculation in recent weeks, leapt 17.3 percent to 41.07 euros in Paris -- just below SAP's 42-euro a-share offer -- and 14.4 percent to $57.53 in New York.

FAST-GROWING MARKET

"We used this opportunity to get faster into this market," SAP Chief Executive Henning Kagermann told a news conference, adding the $10 billion business intelligence software market was the fastest-growing in enterprise software.

"We have proved that we can make tuck-in acquisitions and now we are on the way to proving we can make larger acquisitions work."

Business Objects warned on Sunday third-quarter revenues would fall below expectations due to disappointing licensing fees.

Even so, some analysts saw the rationale behind the deal and even speculated on rival offers.

"The strategic interest of this offer for SAP is such that one cannot rule out a counter-bid from IBM (IBM.N), Microsoft (MSFT.O), even Oracle," CM-CIC Securities analysts said.

Business Objects' 43,000 customers and almost 3,000 sales partners will also help SAP in its race to double its addressable market to 100,000 customers by 2010, mainly by expanding its business with small and medium-sized companies.

SAP said the acquisition will hit earnings next year but start contributing from 2009.

SAP Chief Financial Officer Werner Brandt told the news conference the financing of the deal -- roughly 50-50 cash and debt -- would affect SAP's share buybacks for two years.

SAP Deputy CEO Leo Apotheker told a news conference with Business Objects in Paris: "SAP is not abandoning its organic growth strategy. On the contrary, it will pursue it vigorously."

Business Objects made sales of $1.25 billion last year. About 40 percent of its customers are already customers of SAP.

SAP said on Sunday it had agreed a bid of 42 euros per Business Objects share, a 20 percent premium to the stock's closing price on Friday and a 33 percent premium to its three-month average, valuing the company at 4.1 billion euros.

Database software leader Oracle has spent more than $20 billion in recent years on buying companies to challenge SAP's lead in software that helps enterprises manage functions such as human resources, supply chains and customer relations.

It acquired Hyperion Solutions Corp, a smaller competitor to Business Objects, for about $3.3 billion earlier this year. Oracle on Sunday declined comment on whether it would make a counter-bid for Business Objects.

The SAP-Business Objects agreement leaves Canada's Cognos Inc COGN.O as the only significant independent business intelligence software left in the market. Cognos shares climbed more than 10 percent to $49.