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SAP agrees to buy Business Objects for 4.8 bln euro

FRANKFURT (Reuters) - SAP SAPG.DE has agreed to a cash offer to buy software group Business Objects BOBJ.PABOBJ.O for about 4.8 billion euros ($6.8 billion) in the face of an aggressive acquisition spree by rival Oracle ORCL.O.

In this file photo Chief Executive Officer of software maker SAP Henning Kagermann attends a news conference in New Delhi August 28, 2007. SAP has agreed to a cash offer to buy software group Business Objects for about 4.8 billion euros (3.2 billion pounds) in the face of an aggressive acquisition spree by rival Oracle. REUTERS/Vijay Mathur

The world’s leading business software maker said on Sunday the primary driver for the acquisition, its biggest and a reversal of its avowed organic-growth strategy, was the potential to gain new business.

Germany-based SAP is racing to more than double its customer base to 100,000 by 2010, mainly by winning more small and medium-sized companies as clients.

Its 42 euros-per-share offer represents a 20 percent premium over Business Objects’ closing price on Friday and values Business Objects at about 4.07 billion euros.

SAP said the transaction including costs was worth just over 4.8 billion euros and would be financed through cash and loans.

Franco-American Business Objects, whose business-intelligence software helps companies to mine mountains of data to detect market trends, reported preliminary third-quarter results just after SAP’s announcement that fell short of expectations.

It said that according to preliminary results it would report earnings per share of $0.36-$0.39, compared with the average estimate of $0.51 in a Reuters poll of analysts.

Sales would be between $366 million and $370 million, also below the poll’s average of $385.1 million.

Business Objects has more than 43,000 customers, according to its own data, and made 2006 sales of $1.25 billion. It says about 40 percent of its customers are already customers of

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SAP.

SAP Chief Executive Henning Kagermann told a conference call: “The biggest driver was definitely growing new business.”

The two companies said they would continue to offer standalone software as well as integrated solutions from an unspecified future date.

Business Objects also offers its software on demand over the Web as so-called software as a service, a fast-growing market pioneered by Salesforce.com CRM.N that removes the need for companies to manage their own software infrastructure.

SAP plans to start selling a broader on-demand offering next year, though the launch has been delayed, and Oracle inherited on-demand customer-relations service Siebel.com with its acquisition of Siebel Systems two years ago.

ORACLE CHALLENGE

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 declined comment on whether it would make a counter-bid for Business Objects.

The agreed deal with SAP leaves Canada's Cognos Inc CSN.TOCOGN.TO as the last major independent business-intelligence software maker. Officials with Cognos could not be reached late on Sunday.

The business intelligence-software market is worth at least $8 billion and is expected to grow by 11 percent annually until 2010, faster than the wider software market.

SAP said the acquisition would be earnings-dilutive by a single-digit eurocent amount next year but would add to its earnings per share from 2009 onwards.

It expects the deal -- which Business Objects will recommend to its shareholders, subject to regulatory conditions -- to close in the first quarter of 2008.

Trip Chowdhry, a Silicon Valley based analyst with Global Equities Research, said SAP’s deal was backward-looking.

“I don’t think this is something investors should be cheering,” he said. “They are picking up the leftovers. The good companies at the right prices have already been acquired.”

SAP’s Kagermann said he did not expect any major restructuring to follow the takeover since both companies were adding staff. He said there would be infrastructure synergies but declined to quantify them.

SAP and Business Objects will hold separate, simultaneous news conferences at 1300 GMT on Monday in Frankfurt and Paris.

Additional reporting by Eric Auchard in San Francisco and Jim Finkle in Boston

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