Buy, buy BOBJ

Why SAP's purchase of Business Objects will be bad for employees, buyers, and innovation Shareholders of Business Objects are making out like bandits. But if the acquisition by SAP runs true to form, expect to see job losses, less competition in the business intelligence market, and fewer choices for buyers. And we're not done yet; more business software companies are likely headed for the auction block. First t

Why SAP's purchase of Business Objects will be bad for employees, buyers, and innovation

Shareholders of Business Objects are making out like bandits. But if the acquisition by SAP runs true to form, expect to see job losses, less competition in the business intelligence market, and fewer choices for buyers. And we're not done yet; more business software companies are likely headed for the auction block. First the numbers: SAP will pay $6.8 billion, or $59.37 a share, for the Paris-based vendor. That's a premium of 18 percent over the stock's $50.27-closing price before the deal was announced on Sunday. Not a bad payday. There's been some speculation that another buyer might appear and attempt to outbid SAP, but that's not likely. The weak dollar makes BOBJ, as Wall Street calls it, about 30 percent more expensive for a U.S.-based bidder. The buy is a major departure for SAP, a company that tends to grow its own software rather than make splashy, Oracle-style acquisitions. In April 2006, CEO Henning Kagermann said this: "We are not growing organically because we had no other choice. We think it is a better strategy." Kagermann's remarks were seconded by board member Leo Apotheker, who said at a San Francisco press conference that organic growth results "in a higher return to shareholders." Hello? What's changed? Although they'll deny it, SAP has been hit hard by competition from Oracle, which has spent about $25 billion in the last three years in a series of major acquisitions largely aimed at strengthening its position in the business applications market. Hyperion, snapped up by Oracle earlier in the year, was a major BI provider, and Microsoft has significantly beefed up its business intelligence capabilities through improvements to SQL Server. Despite some slowing, at approximately $6.4 billion (according to AMR Research), the BI market is a prize worth pursuing. Kagermann has committed his company to more than doubling its customer base to 100,000 by 2010. BOBJ boasts more than 44,000 customers worldwide, although there’s obviously a certain amount of overlap. SAP says it will run Business Objects as a stand-alone company, with John Schwartz holding on to the CEO’s chair. This is somewhat different than the way Oracle usually works; its acquired companies are generally merged into one business group or another, with heavy job losses. When Oracle bought PeopleSoft in early 2005, it cut a total of 5000 jobs, or 10 percent of the combined workforce. (Many of the pink slips went to Oracle employees, by the way.) SAP won’t be quite that heavy handed, in part because those crazy French have labor laws that don’t allow wholesale firings. Indeed, BusinessWeek reported that those laws were one reason Oracle decided not to buy BOBJ. Even so, jobs will go. They have to, or the acquisition won't work. It makes no sense to duplicate functions, especially when the purchase price is so high. And like every other executive of a public company, Kagermann has to show bottom-line growth. And sadly, reducing head count, as firings are euphemistically called, is a very easy way to do that. The consequences don't stop there. With Hyperion and now Business Objects grist for the merger mill, Cognos and MicroStrategy are the last of the major BI players standing. But for how long? News of the acquisition gave shares of Cognos an immediate boost as investors figured that it was next in line to be taken out. MicroStrategy could be a target as well, but I suspect that CEO Michael Saylor, who is also a major stockholder, is unlikely to sell. Privately held SAS Institute would be an expensive, but tasty morsel for the likes of IBM, Hewlett Packard, or (less likely) Microsoft. I'm not saying the sky will fall on software buyers; the big players will still compete aggressively with each other. However, the history of the industry shows us that an enormous amount of innovation flows from smaller, highly motivated players. That's disappearing along with some pressure to keep prices in line. I don't begrudge BOBJ's shareholders their profits. After all, being rewarded for risks taken is what business is all about. But it's sad that those profits will come at the expensive of so many others.

SAP, Business Objects
Shareholders of Business Objects are making out like bandits. But if the acquisition by SAP runs true to form, expect to see job losses, less competition in the business intelligence market, and fewer choices for buyers. And we're not done yet; more business software companies are likely headed for the auction block. First the numbers: SAP will pay $6.8 billion, or $59.37 a share, for the Paris-based vendor. That's a premium of 18 percent over the stock's $50.27-closing price before the deal was announced on Sunday. Not a bad payday. There's been some speculation that another buyer might appear and attempt to outbid SAP, but that's not likely. The weak dollar makes BOBJ, as Wall Street calls it, about 30 percent more expensive for a U.S.-based bidder. The buy is a major departure for SAP, a company that tends to grow its own software rather than make splashy, Oracle-style acquisitions. In April 2006, CEO Henning Kagermann said this: "We are not growing organically because we had no other choice. We think it is a better strategy." Kagermann's remarks were seconded by board member Leo Apotheker, who said at a San Francisco press conference that organic growth results "in a higher return to shareholders." Hello? What's changed? Although they'll deny it, SAP has been hit hard by competition from Oracle, which has spent about $25 billion in the last three years in a series of major acquisitions largely aimed at strengthening its position in the business applications market. Hyperion, snapped up by Oracle earlier in the year, was a major BI provider, and Microsoft has significantly beefed up its business intelligence capabilities through improvements to SQL Server. Despite some slowing, at approximately $6.4 billion (according to AMR Research), the BI market is a prize worth pursuing. Kagermann has committed his company to more than doubling its customer base to 100,000 by 2010. BOBJ boasts more than 44,000 customers worldwide, although there’s obviously a certain amount of overlap. SAP says it will run Business Objects as a stand-alone company, with John Schwartz holding on to the CEO’s chair. This is somewhat different than the way Oracle usually works; its acquired companies are generally merged into one business group or another, with heavy job losses. When Oracle bought PeopleSoft in early 2005, it cut a total of 5000 jobs, or 10 percent of the combined workforce. (Many of the pink slips went to Oracle employees, by the way.) SAP won’t be quite that heavy handed, in part because those crazy French have labor laws that don’t allow wholesale firings. Indeed, BusinessWeek reported that those laws were one reason Oracle decided not to buy BOBJ. Even so, jobs will go. They have to, or the acquisition won't work. It makes no sense to duplicate functions, especially when the purchase price is so high. And like every other executive of a public company, Kagermann has to show bottom-line growth. And sadly, reducing head count, as firings are euphemistically called, is a very easy way to do that. The consequences don't stop there. With Hyperion and now Business Objects grist for the merger mill, Cognos and MicroStrategy are the last of the major BI players standing. But for how long? News of the acquisition gave shares of Cognos an immediate boost as investors figured that it was next in line to be taken out. MicroStrategy could be a target as well, but I suspect that CEO Michael Saylor, who is also a major stockholder, is unlikely to sell. Privately held SAS Institute would be an expensive, but tasty morsel for the likes of IBM, Hewlett Packard, or (less likely) Microsoft. I'm not saying the sky will fall on software buyers; the big players will still compete aggressively with each other. However, the history of the industry shows us that an enormous amount of innovation flows from smaller, highly motivated players. That's disappearing along with some pressure to keep prices in line. I don't begrudge BOBJ's shareholders their profits. After all, being rewarded for risks taken is what business is all about. But it's sad that those profits will come at the expensive of so many others.

I welcome your comments, tips and suggestions. Write me at bill.snyder@sbcglobal.net.

Copyright © 2007 IDG Communications, Inc.