SAP buys Business Objects for $6.8B

The acquisition represents a dramatic break with SAP's long-entrenched strategy of growing organically and making only small, bolt-on acquisitions.

SAP said it would offer €42 in cash per Business Objects share, 20% more than the Friday closing price. The offer values Business Objects at about 28.7 times its forecast 2007 earnings per share and 22.8 times 2008 earnings.

"SAP has paid premium price for a premium asset in the sector," Credit Suisse Group analyst James Clark said in a note.

He added that the enterprise value of the transaction is 9.5 times Business Objects' forecast 2008 maintenance revenue, whereas Oracle paid a multiple of 7.8 for Hyperion.

French Broker CM-CIC Securities speculated that the bid could spark a rival offer of about €45 to €48 per share from one of SAP's peers, which include Oracle Corp., IBM Corp., Microsoft Corp. and Hewlett-Packard Co.

The deal ranks as the largest acquisition in the business software market this year, topping Oracle Corp.'s $3.3 billion agreement to buy Hyperion Solutions Corp. in March.

The acquisition is SAP's biggest ever deal by a factor of about 10 times, with the second largest the $400 million purchase of TopTier Software Inc. in 2001. The group's biggest purchase so far this year was its May deal for Stamford, Conn.-based OutlookSoft Corp., which was valued at about $200 million.

Business intelligence software helps firms organize their data to better measure and analyze their performance and, critically, run their risk management systems. Business Objects is the number one company in the market.

The acquisition is SAP's biggest ever deal by a factor of about 10 times, with the second largest the $400 million purchase of TopTier Software Inc. in 2001. The group's biggest purchase so far this year was its May deal for Stamford, Conn.-based OutlookSoft Corp., which was valued at about $200 million.

While Walldorf, Germany-based SAP has pursued organic growth and smaller acquisitions, its closest competitor, Oracle has spent about $25 billion to acquire about three dozen companies over the past three years.

"This transaction represents a significant change in corporate strategy for SAP," Clark said.

SAP said the agreement was part of a five-year strategy, announced in 2005, to double the size of the markets in which it operates.

"The acquisition is in keeping with [that] stated strategy," SAP chief executive Henning Kagermann said in a statement.

SAP has more than 41,200 customers in more than 120 countries. Business Objects serves about 44,000 customers, including about 80% of the Fortune 500.

The French group has been an active buyer of other business in the past year. In April, it agreed to buy Paris-based Cartesis SA for €225 million.

The SAP offer comes just weeks after Business Objects issued a profit warning for its third quarter, blaming lower than expected revenues from its software licensing operations.

SAP said it would operate the French business on a standalone basis. It said the acquisition would lead to a mid-single digit decline in earnings per share in 2008 but would boost earnings from 2009.

SAP said its offer hinged on winning 50.1% of Business Objects shares. SAP is expected to raise about €2 billion of debt to fund the deal. The German group has about €2.8 billion of cash. Deutsche Bank AG advised SAP on the transaction. Goldman, Sachs & Co. was Business Objects' adviser.

Business Objects shares were suspended Monday morning on the Paris bourse at €41, equal to a market capitalization of €3.9 billion. SAP shares traded at €39.5, down €2.37, or 5.7% on their Friday close, valuing the group at €50 billion