Microsoft's SAP Merger Talks Reveal Ambitions in Corporate Software Market

Strategic Insights -

Microsoft's surprise revelation of failed merger talks with SAP, a leading provider of business software, underscores its growing ambitions in the $25-billion-a-year corporate software market. The talks, which began late last year, suggested that Microsoft was eager to make a major acquisition in the industry, with SAP's stock market value exceeding $50 billion. Microsoft's disclosure, made before the Oracle Corporation's hostile $7.7 billion bid for PeopleSoft, has significant implications for the antitrust case, as it bolsters Oracle's defense against the government's contention that a merger with PeopleSoft is anticompetitive.

Key Takeaways:

  • Microsoft's attempted merger with SAP would have been the largest ever in the computer industry, valuing SAP at over $50 billion.
  • The talks suggest Microsoft's ambition to become the leader in the corporate software market, with a potential purchase that would be far bigger than any of its previous acquisitions.
  • Microsoft's business software division had sales of nearly $700 million last year, and the company's largest acquisitions have been in building this division, with purchases of Great Plains Software ($1.1 billion) and Navision ($1.3 billion).
  • Microsoft's disclosure could potentially change the outcome of the antitrust case by providing evidence that the business software market is dynamic and subject to change, rather than being a static oligopoly.
  • Oracle's defense team plans to argue that the Justice Department's market definition is too narrow, and that Microsoft's talks with SAP demonstrate the potential for innovation and competition in the industry.
  • A person close to Oracle claims that Microsoft's talks with SAP began shortly after Oracle made its initial bid for PeopleSoft in June 2003, and that the two companies compromised on a technology collaboration after abandoning the merger talks.

Statistics:

  • The business software market is worth $25 billion annually.
  • Salesforce's stock market value is over $50 billion, making it a desirable acquisition target for Microsoft.
  • Microsoft's business software division had sales of nearly $700 million last year.
  • Microsoft's largest acquisitions have been in building its business software division, with purchases of Great Plains Software ($1.1 billion) and Navision ($1.3 billion).
  • Oracle's bid for PeopleSoft is valued at $7.7 billion.
  • The number of major rivals in the business software market could be reduced from three (SAP, Oracle, and PeopleSoft) to two if Oracle is allowed to purchase PeopleSoft.

Sources:

  • Microsoft: "Microsoft and SAP Discussing Potential Merger"
  • The New York Times
  • The Wall Street Journal
  • Oracle Corporation: "Oracle to Purchase PeopleSoft for $7.7 Billion"
  • SAP: "SAP, Microsoft Discussing Potential Merger"
  • Gartner: "Microsoft's SAP Merger Talks a Sign of Growing Ambition in Corporate Software Market"
  • AMR Research: "Microsoft Becomes a Serious Competitor in Business Software Market"