Justice Department Won't Block Oracle Bid

The U.S. Department of Justice, which unsuccessfully opposed Oracle's acquisition of PeopleSoft, isn't standing in the way of its efforts to buy retail-management software vendor Retek Inc. On Friday, Oracle received clearance from the Justice Department to acquire Retek, Oracle said, should its bidding war with SAP be successful.

Thursday night Oracle bid $11.25 per share, or about $630 million, for Retek, topping the $11-per-share offer SAP made earlier in the day. SAP initially struck a deal last month to acquire Retek for $8.50 per share, or about $496 million, but last week Oracle made a play for the company with a $9-per-share bid. Retek has urged its shareholders to accept what SAP called its "best and final offer."

As the bidding for Retek goes on, no one can quite predict where it will end. "Retek is the most desirable company in a fought-over market," says Jim Shepherd, analyst at AMR Research. "It's an acquisition where, for either Oracle or SAP, the price they pay doesn't matter very much."

Retek had sales of $174 million in 2004 with profits of $8.2 million. It lost $20.5 million the year before on sales of $168 million.

Asked if SAP had really submitted its "best and final offer," Shepherd laughed. "How many times have we heard that phrase in the last 18 months? We don't know what it means, coming from SAP, but we know what it means coming from Oracle. Not very much."

During its campaign to acquire PeopleSoft, Oracle submitted a "best and final" offer for the application maker, then promptly raised it when PeopleSoft's board of directors indicated it was willing to enter negotiations.

SAP's opening bid for Retek was 7 to 8 times its annual maintenance revenue. With Oracle's latest bid of $11.25 per share, the price for the company is 9 to 10 times annual maintenance revenue, says Kash Rangan, an analyst at Wachovia Securities LLC, a unit of Wachovia Corp.

"If Oracle tries to justify this purchase on the basis of recurring revenue, it's paying a premium, even when compared to PeopleSoft," he says. At Retek's current price, either SAP or Oracle "would have to work hard to make the acquisition pay off." That means expanding sales to Retek's existing customers and finding new customers, Rangan says.

Although both companies want to acquire Retek, some analysts think Oracle needs it more than SAP does to break into the difficult retail software market.

"Oracle's presence in the retail market is much weaker than SAP's," says Mike Dominy of the Yankee Group. "It's a very savvy move by SAP. They can continue to compete, even if they don't buy Retek," he says. In the meantime, SAP is bidding up the price Oracle will have to pay.

Other analysts say the stakes are high for SAP as well because of its emphasis on vertical markets. To lose the dominant supplier of retail applications in North America, where SAP's presence isn't as strong as in Europe, would be a blow, says Mark Smith, CEO of Ventana Research.