SAP to buy Ariba, boosts cloud bet

SAN FRANCISCO Wed May 23, 2012 4:10am EDT

Logo of German company SAP is pictured at the CeBit computer fair in Hanover, March, 6, 2012. The biggest fair of its kind will run to March 10, 2012. REUTERS/Fabian Bimmer

Logo of German company SAP is pictured at the CeBit computer fair in Hanover, March, 6, 2012. The biggest fair of its kind will run to March 10, 2012.

Credit: Reuters/Fabian Bimmer

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SAN FRANCISCO (Reuters) - Top European software company SAP AG plans to buy Ariba Inc in a deal valuing the business and commerce network company at $4.3 billion, its latest maneuver against Oracle in the fast-growing Internet-based computing market.

SAP is taking aim at Oracle, the world's No. 2 maker of business management software, as they vie with Salesforce.com Inc in the multibillion dollar cloud-computing services market, one of the industry's hottest area of growth.

Shares in Ariba, which were halted briefly, leapt 20 percent to SAP's offer price of about $45 per share.

"This deal puts them more on the radar screen and gives them another big customer base they can sell additional services into. These are not inexpensive moves but it signals they are really tilting more toward the cloud," said Evercore analyst Kirk Materne.

SAP's announcement comes just weeks before Oracle CEO Larry Ellison is due to announce the Silicon Valley company's latest cloud software strategy, on June 6.

The $45-per-share offer for Ariba, a darling of the first dotcom boom that has since reinvented itself as a major networking and online commerce software developer, values Ariba at 6.9 times expected 2013 revenue, according to Roth Capital Partners.

Salesforce.com trades around 5.5 times expected revenue.

The purchase of Sunnyvale, California-based Ariba would be the latest in a string of acquisitions by German technology company SAP to help fuel its revenue growth and expand its cloud computing business.

SAP said it expected the deal, already approved by Ariba's board, to close in the third quarter.

But Cross Research analyst Richard Williams said that since many of Ariba's customers use Oracle services, there is good reason -- and precedence -- to expect the U.S.-based Oracle to make a rival bid.

In 2005, Oracle snatched retail software maker Retek away from SAP after a bidding war that reached $630 million.

"Strategically it's a valuable asset and would disadvantage Oracle if SAP were to close the deal, so I can see a case for why Oracle would feel the need to enter into the bidding to protect its own potential growth opportunities," Williams said.

SHARES HALTED

Cloud computing refers to providing software, storage, computing power and other services to customers from remote data centers over the Web.

Oracle and SAP are locking horns as both transform themselves into major players in the cloud and reduce their reliance on traditional business software. SAP's purchase of Web-based software company SuccessFactors Inc, announced late last year, was seen as accelerating their running battle.

In February, Oracle increased its bet on cloud computing by agreeing to purchase Taleo Corp, a maker of Web-based software for recruiting employees, for about $1.9 billion.

SAP's deal puts Ariba's enterprise value at about $4.3 billion. Enterprise value is market capitalization plus debt and other considerations.

Demand for cloud-based software is rising rapidly because the approach allows companies to start using new programs faster and at lower cost than traditional products that are installed at a customer's own data center.

SAP intends to integrate Ariba into Hana, a business intelligence tool to help companies analyze large quantities of data quickly. Hana came to market last year and generated 160 million euros in sales through the end of 2011, surpassing SAP's own expectations of 100 million euros.

"We are looking forward to optimizing Ariba so it can be used in real-time. This is a new category of the cloud. We want to accelerate the platform for collaboration between companies," SAP co-chief executive Jim Hagemann Snabe said on a conference call.

SAP said its transaction would be funded from its free cash and a 2.4 billion euro ($3.06 billion) term loan facility.

The European company also said it would consolidate its cloud-based supplier assets under Ariba, which would continue to operate as an independent business.

Ariba shares closed up 19.2 percent to $44.87 on Nasdaq on Tuesday, suggesting investors expect the deal to be completed around that price. ($1 = 0.7838 euros)

(Additional reporting by Jim Finkle in Boston and Sayantani Ghosh in Bangalore; Editing by Viraj Nair, Carol Bishopric, David Gregorio, Phil Berlowitz and Bob Burgdorfer)

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Comments (1)
Acquiring when reinvention/cannibalization is too challenging for a large organization can be an excellent strategy- still, so many mergers stumble in the implementation phase and fail to achieve expected gains. Migrating and/or connecting ERP to the cloud requires an operational road map and a clear post merger path. Let’s hope SAP’s acquisition team is looking at other cloud providers with stronger ERP ties to complement this acquisition and accelerate its planned time to benefit. Taulia (http://www.taulia.com), among others, has excellent middleware already deeply integrating SAP to cloud providers, and plays well with Ariba.

May 23, 2012 2:34pm EDT  --  Report as abuse
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