Deals and IPOs

SAP Shares Slump on Business Objects Deal

Shares of SAP, the world's leading business software maker, tumbled Monday on the news that it would buy Franco-American company Business Objects, as investors feared the price of the transaction was too high.

SAP dragged the European technology sector down with it, with technology shares closing 0.7% lower across the continent.

The German software maker has always been an advocate of organic growth and its move was seen by some analysts as a signal that U.S. rival Oracle was fast closing the gap.

"With this acquisition SAP is changing strategy from less organic growth to more acquisition strategy," Brice-François Thebaud, European software & IT services equity analyst at Aurel Leven, told "Power Lunch Europe."

But SAP denied it agreed the deal to counter the fast growth of Oracle.

"It's not a reaction because we can't see that Oracle is gaining market share," SAP Chief Executive Henning Kagermann told a news conference on Monday, Reuters reported.

Focus on Price

The deal, worth 4.8 billion euros ($6.8 billion), was announced Sunday and is seen by many analysts as over-valuing the profit potential of Business Objects, especially now that it announced a profit warning.

"There is a big premium of the price paid by SAP for Business Systems, something like 30% on the 20 days trading," Thebaud added.

SAP defended the value of the transaction.

"The valuation of Business Objects is "not abnormal" in comparison to recent acquisitions in the sector... it's a balanced valuation in view of the enterprise value of Business Objects," SAP deputy-CEO Leo Apotheker told the news conference.

Other analysts said the transaction could bring long-term benefits, as it shows a commitment to growth, and did not necessarily signal a U-turn.

"I don't think they've given up on organic strategy," David Bradshaw, principal analyst at Ovum, told "European Closing Bell."

"They have these very ambitious growth goals that they're going to double their order income by 2010 and they can't do that on organic growth alone," he added.

Business Objects Shares Soar

Shares of Business Objects, whose business-intelligence software helps companies to mine mountains of data to detect market trends, soared more than 17%, bucking the trend across the continent.

The company reported disappointing preliminary third-quarter results just after SAP's takeover announcement.

It said 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. About 40% of its customers are already customers of SAP.

Business Objects, which agreed to the unsolicited bid, said it received interest from numerous companies, but never actively put itself up for sale.

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