Investors in SAP were not so friendly. The company''s share price registered its sharpest decline in eight months in German trading today. The reason: the Business Objects acquisition is expected to reduce SAP''s earnings next year.

SAP will make a cash offer of €42.00 per ordinary share and for American Depositary Shares (ADS) at the US$ equivalent based on the EUR/US$ exchange rate as of the settlement of the tender offers. The Business Objects board of directors has approved the tender offer agreement between the two companies, and expects to recommend the offer to its shareholders subject to fulfillment of certain regulatory requirements.

Henning Kagermann

The German company is constantly at war in the enterprise marketplace with American IT major Oracle, which has been aggressively buying up companies to build a dominant share in the enterprise resource planning, or ERP, space. Oracle, which acquired PeopleSoft in 2005 and Siebel in 2006, grabbed business intelligence software provider Hyperion Solutions in April 2007 for $3.3 billion. Since 2005 Oracle has spent more than $25 billion on acquisitions, which include I-Flex in India.

Hyperion is in the same space as Business Objects, with a focus on financial management and reporting. The problem with its being swallowed by Oracle was that many Hyperion customers were also SAP customers. The German company had reason to feel threatened.

The Business Objects buy is the biggest acquisition so far by SAP, which has maintained an explicit strategy of growing by the organic route. But, as the business intelligence market showed signs of rapid growth (the BI market is said to be worth $10 billion, and growing at 10 per cent a year), SAP needed to pick up a company with strengths in this area. Oracle''s acquisition of Hyperion may or may not have pushed SAP into deviating from its strategy, but it certainly was an omen of the times.

SAP plans to sell Business Objects'' software to finance departments and executives who need to track costs and operational data around the world. The German company reportedly sells to two out of every five Business Objects customers, and hopes to leverage this overlap to expand business.

"We are highly committed to the next generation of applications serving Business Users," says Henning Kagermann, SAP''s CEO. "The combination of SAP and Business Objects in their respective domains will benefit customers, prospects, partners, employees and shareholders. At SAP, we are excited about the prospect of having Business Objects join the SAP Group."

"The acquisition of Business Objects is in keeping with SAP''s stated strategy to double our addressable market by 2010 as announced in 2005," according to Kagermann. "SAP will accelerate its growth in the business user segment, while complementing the company''s successful organic growth strategy."

SAP has been asserting its faith in the organic growth approach, despite the spectacle of Oracle''s voracious appetite for swallowing large and small rivals. Now, analysts say, SAP has maybe confirmed that Oracle was doing the right thing after all.

The problem is that SAP may have left it a bit too late to enter the acquisitions game. As a result, it has had to bargain from a position of weakness. The consequence: having to pay a higher price for its acquisition that it might have otherwise done, analysts say.

Not bad, eh? Bernard Liautaud (left) and John Schwarz

The Paris-based Business Objects is a leading business intelligence software company with solutions spanning the information discovery and delivery, information management, analysis and performance management categories for more than 44,000 customers around the globe.

Bernard Liautaud, chairman and founder of Business Objects, says, "The combination of Business Objects and SAP means that we can truly amplify the reach of business intelligence - from the C-suite to Main Street."

The two companies have said that even after SAP takes charge, Business Objects will operate as a stand-alone business within the SAP group. John Schwarz will continue as its CEO and will probably also join the SAP executive board. Doug Merritt, corporate officer, business user, SAP, will join the Business Objects unit and report to John Schwarz.

Business Object founder Bernard Liautaud is expected to join the SAP Supervisory after SAP''s next shareholders meeting, until which time he will play an advisory role to Henning Kagermann on issues of strategy and integration.