Competitive Intelligence

Oracle vs. SAP: The Battle for Retek & Retail's Supply Chain Infrastructure

Larry's playing spoiler again and defending his territory, going after SAP's latest acquisition target, Retek, an acquisition by SAP originally designed specifically to tweak Oracle's nose in its retail-industry stronghold:

“Acquiring Retek brings a whole new level of industry focus and technical ability to SAP’s product lineup,” says Scott Langdoc, analyst for AMR Research Inc., adding that SAP appears willing to acquire additional retail industry software application vendors.

SAP gains strong capabilities in web-based demand forecasting, demand-driven replenishment and retail planning, and will be able to offer multi-channel capability in order management, Langdoc says. Retek also brings clients like Gap Inc., A&P and Nordstrom Inc., who could benefit from SAP’s strength in enterprise software implementations, he adds.

Minneapolis-based Retek provides an integrated suite of retail software applications and serves more than 200 companies in 20 countries. It posted $174.2 million in revenue last year. Under the terms of the acquisition agreement, Retek will merge with SAP’s U.S. unit, SAP America Inc., and the two companies will decide over the next several weeks whether to keep the Retek name and other brands, a spokeswoman says. The $496 million price is based on an all-cash offering of $8.50 per share of Retek, representing a 42% premium for Retek shareholders.

Henning Kagermann, CEO of SAP, said the Retek acquisition enables SAP to offer a comprehensive set of applications extending from POS systems to supply chain management applications as it seeks to expand in the retail market. “The global retail industry represents a significant growth opportunity for SAP,” he said.

SAP also faces challenges in capturing more of the retail software market with Retek, analysts say. Several existing SAP and Retek applications, including financial planning and supply chain management, directly compete with each other in the retail industry, and SAP will have to decide which of these it will support over the long term, says Paula Rosenblum, director of retail research at AberdeenGroup Inc.

Until now, Oracle Corp. has been the source of the preferred back-end financial software integrated with the Retek suite, but retailers may now be expected to migrate from Oracle to SAP, a move many retailers are unlikely to accept willingly, Rosenblum says. “Retailers are as unlikely to want to take the time and resources to move from Oracle to SAP as they are to move from PeopleSoft to Oracle,” she says. “A different financial package will not help any retailer win the hearts and minds of consumers.”

Rosenblum adds that SAP will also have to address the difficulties retailers have faced in upgrading Retek applications as well as in installing SAP applications. She adds that retailers’ demand for quick returns on investment from software implementations may favor, at least in the short term, niche players like merchandise optimization software vendor ProfitLogic and supply chain software providers Logility Inc. and New Generation Computing Inc.

In making the original acquisition announcement, SAP said the retail industry is entering a new phase of packaged software adoption, as retailers start considering IT a strategic weapon to drive competitive differentiation and business growth.

"SAP has been much more successful moving from one manufacturing industry to another manufacturing industry because there are many more common core set of attributes there," says Mike Dominy, a senior analyst with the Yankee Group. "This is a good acquisition for SAP, because it gives them a significant increase in market share and represents a renewed interest in being a major player in that industry."

AMR Research analysts Scott Langdoc, Robert Garf and Jim Shepherd predict, in an Alert Highlight "the combination of SAP and Retek will become a very difficult competitive challenge for existing enterprise retail software players. For nearly a year, it has been rumored that Oracle was interested in Retek as a way of heading off the growing competitive threat in retail from SAP. Oracle will need to push its relationship with Tomax as a way of offering industry applications beyond the core Oracle capabilities. JDA Software, in the midst of delivering its long-delayed .NET integrated retail systems, loses a longstanding competitor but will struggle even more mightily against the resources and abilities of the Retek-infused SAP."

And, Oracle's just sweetened the pot for Retek shareholders to reconsider the SAP offer:

In a blocking move against application rival SAP, Oracle will make a bid Wednesday morning to acquire Retek Inc., a leading supplier of retail-management applications, for $9 a share.

Oracle's move comes just one week after SAP said its North American subsidiary, SAP America Inc., had signed a definitive agreement to acquire Retek for $8.50 per share, or approximately $496 million.

"We have the largest application business in North America, with about 23,000 customers, and [we] intend to defend the No. 1 position," Oracle CEO Larry Ellison said in a conference call Tuesday.

An SAP spokesman declined to comment on Oracle's bid until SAP has had a chance to review the Oracle offer.

On Monday and Tuesday, Oracle purchased 5.5 million shares of Retek common stock, representing about 10% of its total shares outstanding, according to Oracle. Oracle spokesmen said Tuesday that the company planned to follow up that move Wednesday with a tender offer to purchase all outstanding shares at $9 a share.

Oracle delivered a letter to the Retek board of directors Tuesday that said Oracle could finance the purchase from its existing cash balances, and its offer "is not subject to any financing conditions."

In the letter, Ellison claimed Oracle was matching the terms and conditions of the SAP offer "but at a higher price." During the conference call, he said Oracle began considering making a bid for Retek in September.

Can SAP afford to let Retek go? And the bigger question, can Oracle? While this won't be another PeopleSoft fight to the finish, I wouldn't be surprised if it's at least a bloody-enough battle for all three companies... regardless, the real winners in this horse race are likely to be Retek's shareholders.

- Arik