Wednesday, May 12, 2010

SAP Buys Sybase for $5.8 billion - McDermott Takes on Ellison

SAP is turning into a US company with a more aggressive and growth-seeking stand in the marketplace. I tend to think this has large to do with my old friend Bill McDermott who is one of the most commercially gifted leaders I have ever met. SAP had to change course given Oracle's aggressive inorganic growth track  record in the last 5 years. IT stack will continue to consolidate and Sybase was in deed the right move provided that they continue to build a pipeline of targets and execute well to close and integrate them. The next domain SAP should look into Enterprise Content Management which offers another untapped growth opportunity for SAP over Oracle.

Here's the annoucement fro the Wall Street Journal -

$5.8 Billion Software Merger Intensifies Competition With Archrival Oracle.
SAP AG said it would pay $5.8 billion to buy fellow software maker Sybase Inc., a move that would give the German giant key technology in its battle against archrival Oracle Corp. in the business-software market.

SAP said it will pay $65 for each Sybase share—a 56% premium to Tuesday's closing price. SAP said it will pay cash, using its own reserves and a $3.5 billion loan. It expects the deal to close in the third quarter.

The deal is SAP's largest since its 2007 purchase of Business Objects SA for $6.8 billion and is another sign that the Walldorf, Germany, company, is departing from its historic tendency to eschew growth by acquisitions.

SAP, which makes software that businesses use for tasks like balancing the general ledger and managing inventory, replaced its chief executive in February with two co-CEOs. The new executives pledged to expand the company partly through acquisition. In March, SAP issued €1 billion ($1.27 billion) of debt, in part to build up its war chest for deals.

"We wanted to make a huge impact in the first 100 days," Bill McDermott, one of the co-CEOs, said in an interview. The deal marked a "newer, bolder SAP," he added.

Sybase, of Dublin, Calif., makes database software that competes with offerings from Oracle and International Business Machines Corp., although it trails far behind those two companies in market share.

SAP has struggled since the start of the recession. Its revenue declined 8% to €10.7 billion in 2009, as businesses held back on buying its software, which often costs millions of dollars and can take years to install.

Meanwhile, Oracle has continued to apply pressure and move deeper into SAP's turf. It has spent billions to acquire a series of smaller software makers over the years, including ones that make software similar to SAP's.

By acquiring Sybase, SAP would not only have its own database products but would gain access to several new technologies that its executives have recently touted, such as the ability to make applications available to mobile devices. The two companies will also be able to share so-called in-memory tools that can make applications run faster.

SAP first approached Sybase about two months ago—just a few weeks after Mr. McDermott took over—according to people familiar with the matter. Mr. McDermott had been friends with Sybase CEO John Chen for about 12 years, which helped the deal, these people said.

In the past, SAP has struggled to close deals, people familiar with the matter said. It has often come close to buying a company, only to find a reason to back away at the last minute, according to these people.

Mr. McDermott, however, was willing to be more aggressive than his predecessors, a person familiar with the matter said.

Ray Wang, an analyst with Altimeter Group who tracks software companies, said Sybase's technology will help SAP appeal to customers like big financial institutions and companies that want to give employees secure access to information-technology systems from mobile devices like BlackBerrys.

The Sybase deal also gives SAP database offerings that will make it less dependent on reselling software from Oracle. Mr. Wang sai d SAP sells about $1 billion worth of Oracle databases annually. As a company like SAP, "you want to reduce the amount of money you send to your competitor," he added.

Shares in Sybase surged 35% to $56.14 Wednesday on news that a deal was near, which was earlier reported by Bloomberg. Shares rose an additional 15% in after-hours trading to $64.50.

Peter Goldmacher, an analyst with Cowen & Co., said the deal seems to be a desperate move by SAP. "Their business is terrible," he said. "They've been out-executed at every turn by Oracle."

Mr. Goldmacher said he believes SAP will have a hard time convincing customers to move from Oracle database software to Sybase offerings.

Mr. McDermott said in the interview that the deal's success isn't dependent on SAP customers replacing their current database software with Sybase's version, but instead on the other technologies and the opportunities for growth they present.

Sybase will remain a standalone unit within SAP. Sybase's current leadership is expected to stay on.

Deutsche Bank and Barclays Capital are providing financing for SAP, and Bank of America Merrill Lynch advised Sybase. The Jones Day law firm advised SAP, and Shearman & Sterling was the legal advisor to Sybase.

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