Larry Ellison Wins Again

In my years in and around the tech industry and Silicon Valley, I've come to realize something: For many of the tech bigwigs, business is a sport. And none takes the game as seriously as Oracle (Nasdaq: ORCL  ) CEO Larry Ellison does. Few have his track record, either. After closing 2004 by defying long odds to scoop up rival PeopleSoft, Ellison has now outmaneuvered rival SAP (NYSE: SAP  ) to win retail software applications vendor Retek (Nasdaq: RETK  ) .

The deal buys out Retek shareholders for $11.25 per share, a heady 88% premium on the Feb. 25 closing price of $6 per stub and higher than the $8.50 that SAP had offered on Feb. 28, when it first announced its planned purchase of Retek. Oracle countered that $8.50 with a $9 offer and just kept bidding until SAP got tired. The end came at 12:15 a.m. Eastern time this morning.

Foolish colleague Tom Taulli has posited that Oracle's pursuit of Retek masks an underlying weakness in its core database business. I disagree. Sure, Microsoft's (Nasdaq: MSFT  ) SQL Server and IBM's (NYSE: IBM  ) DB2 are formidable competitors, but Oracle is still the database king.

Besides, more information is going digital, now that radio frequency identification (RFID) and wireless networking are gaining in popularity. Corporations, too, are tracking more information online than they ever have before. Where does all this data go? Into databases, of course.

Ultimately, the Retek acquisition is nothing more or less than a way for Ellison to slap SAP's hand for trying to encroach on his company's turf. Indeed, Oracle was already the largest business software vendor in North America before Retek. Now Oracle expands that lead and gets access to some key retail accounts for selling applications as well as database software.

Does any of this drama matter for shareholders? Absolutely. Future returns for Oracle depend on widening cash flows from new customer acquisitions. The market for business software, however, is remarkably competitive and is populated by notoriously tight-fisted customers who are loathe to switch vendors.

So by gobbling up firms that already have a rich customer base, Oracle is buying years of growth. It's an expensive and risky strategy, but no more so than trying to grow organically in a mature market. Think about that the next time you read an article commenting on Ellison's sizeable ego.

For related Foolishness:

  • See how this all got started.
  • A week later, Oracle decided to play spoiler.
  • I guess we can't call Larry's company "OracleSoft" anymore.

What do you think of the deal? Did SAP really lose, or is the company better off not getting into a bidding war? How about Oracle? Is it buying up too much, too fast? Share your thoughts with other Fools at the Oracle, SAP, and Retek discussion boards. Only at Fool.com.

Fool contributor Tim Beyers still owns shares of Oracle. You can find out what else is in his portfolio by checking Tim's Fool profile. The Motley Fool has a disclosure policy.


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