SAP AG's planned purchase of Sybase Inc for $5.8 billion to move ahead of arch rival Oracle Corp in the mobile data market has raised concerns the German software maker is paying too much.
Just three months into their new jobs, co-chief executives Bill McDermott and Jim Hagemann Snabe announced on Wednesday what would be the second-largest acquisition in SAP's near 40-year history after its purchase of Business Objects in 2008.
SAP agreed to pay $65 per share in cash for Sybase, which is the world's No. 4 provider of database software -- a 56 percent premium to Sybase's Tuesday closing price on the New York Stock Exchange.
Last month, the far more acquisitive Oracle bought Phase Forward Inc , the top maker of programs that help drugmakers run clinical trials, for $685 million, a 30 percent premium at the time.
With even Sybase saying 'the stock hadn't closed above $50 since the mid-1990s,' we think this will not hurt SAP's reputation for overpaying, UBS analyst Michael Briest wrote in a note.
SAP paid 4.8 billion euros ($6.1 billion) for Business Objects, a 20 percent premium at the time.
SAP shares fell 1.1 percent to 35.67 euros on Thursday, compared with a 1.1 percent gain in Germany's blue-chip DAX index <.GDAXI> as analysts questioned the hefty price tag.
SAP is buying Sybase at a time when the shares were near an all-time high. They hit $48.20 on March 23 and had come off a little before Wednesday's news of the takeover offer.
The bid values Sybase at 24.4 times expected 2010 earnings, according to Thomson Reuters I/B/E/S StarMine SmartEstimates, above SAP's own 17.4 times but below the U.S. systems software sector average of 35.4.
Straying from the company's careful acquisition strategy of the past, SAP's move is seen as a full blown attack on Oracle, who was the first major software maker to aggressively pursue acquisitions and has spent more than $42 billion to buy about 60 companies.
SAP finally learned that they should take some clues from Oracle's playbook. They finally woke up, said Trip Chowdhry, an analyst with Global Equities Research. They are late, but late is better than never.
Sybase shares were up 15 percent to $64.35 on Thursday afternoon on the New York Stock Exchange. They soared 35 percent on Wednesday after Bloomberg News reported that Sybase was in play.
ATTACKING RIVALS WITH MOBILE
SAP argued the Sybase deal made strategic sense because it will allow the German company to benefit from the explosion in mobile data especially in the Asian-Pacific region where Sybase had a strong presence.
California-based Sybase sells programs that make it easy for workers to access business software via smartphones and other mobile devices. SAP already uses the technology to let customers access its applications when they are on the road.
Sybase also sells a powerful database that large companies, such as banks, use to store sensitive information. It is the fourth-largest maker of database software after Oracle, IBM and Microsoft Corp .
Jefferies & Co analyst Ross MacMillan said Sybase's most valuable asset is its mobile software because it will give SAP an edge over Oracle when it comes to allowing customers to use business management programs on the go.
SAP wants to make it easier for businesses to use its software on devices from companies, including Research in Motion Ltd Apple Inc , Google Inc , analysts said.
Mobile software products only accounted for about 27 percent of Sybase's $403 million in software sales last year. The bulk of revenue came from Sybase's database, which is rarely used in conjunction with SAP's software products.
MacMillan said it was not clear how the Sybase database would fit into the rest of SAP's business of selling software for managing business tasks, such as accounting, human resources and manufacturing.
The question I have is: what's the plan with the database business? Reading between the lines, it's not really growing, but it's highly profitable, MacMillan said.
($1 = 0.7872 euro)
(Reporting by Nicola Leske and Jim Finkle; editing by Andre Grenon)