According to new SEC filings as well as interviews with executives, attorneys and consultants on both sides of the battle, the battle for control of Retek Inc. was inadvertently influenced more by PeopleSoft than anything else.
After a multiyear OEM resale relationship between Oracle Corp. and Retek that started in 1998 and ended in either 2001 or 2002, Oracle and SAP AG were actively in talks with Retek's board as of September 2004 to acquire Retek. But Oracle bowed out of those talks in December, citing the extreme distraction of the PeopleSoft acquisition and integration.
In the meantime, SAP plunged ahead. In November, it had offered to pay a per-share price of between $6.75 and $7.25.
By mid-January, SAP's chief financial officer, Werner Brandt, said SAP might go as high as $8.40 per share, but he "firmly rejected" a Retek board request to consider offering $9, according to an Oracle SEC filing. Note: By mid-March, SAP was offering $11 per share, only to be beaten by Oracle with an $11.25 winning bid.
But PeopleSoft did more than convince Oracle not to pursue Retek in December. As Oracle started absorbing PeopleSoft, it realized that it now owned roughly 400 new retail accounts. All of a sudden, owning Retek made even more sense.
This is all part of what some Retek insiders describe as a growing Oracle awareness of two market facts: Retail is really important; and retail-specific apps are really difficult to do well.
To understand the emotional and political dynamics at play in this battle, it's necessary to explore what happened when the two companies parted ways, back when Oracle was reselling Retek software.
Resale deals between companies like Oracle and Retek are never expected to last forever, so it's not necessary to find a major falling out to explain the pact being dissolved.
But there was certainly a concern from some at Retek that Oracle at the time didn't appreciate the importance of the retail vertical, nor the difficulty in servicing it. In this context, servicing retail doesn't mean selling operating systems or business databases or payroll platforms. It means providing the kinds of retail-specific apps?such as POS, supply chain and merchandising?that Retek did all day.
"Retail was not a priority for [Oracle] at the time. It was more of an afterthought," said Al Galgano, who was Retek's vice president for investor relations and corporate development at the time of the acquisition. "It just wasn't a partnership arrangement that worked. It was more of the focus of an Oracle versus Retek. The focus was different and it didn't match up at the time."
But as Oracle worked through the PeopleSoft integration and "found themselves with [an additional] 400 retail clients," it started to hear the cha-chings of the registers from all of the cha-chings of registers.
Historically, Oracle "has had two different businesses: technology and applications," said another Retek executive, Duncan Angove, who served as Retek's chief strategy officer. "Only recently have applications come to the forefront. The need to have industry specialization has [recently] risen to the top."
Another bit of industry that is critical background for this saga is the long-standing competition between Oracle and Retek against SAP. "There has always been an understanding of a common enemy: SAP," Angove said. And a common enemy is what helped Oracle and Retek work well together while they did.
It should be noted that Oracle and Retek continued to cooperate on multiple levels even after the formal resale relationship ended. As Oracle execs are fond of pointing out, Retek's products have been developed on Oracle's technology platform using Oracle's development tools. Nearly 80 percent of Retek's customers run their Retek applications on the Oracle database.
So as this retail-app specialty awareness grew?lodged atop a well-aged dislike of SAP?it forced Oracle to make a strong fight for Retek control by March.
The Retek board had a strict confidential agreement with SAP that prevented Retek from briefing Oracle on their negotiations. But once the SAP-Retek deal was announced on the last day of February, Oracle quickly moved in to counter and outbid SAP.
From an outside perspective based on reading the statements the companies issued, it looked like Retek's board was more interested in embracing SAP than Oracle. Retek's first public statement was a board recommendation to its shareholders to accept the SAP offer. When Oracle countered, the board said nothing. When SAP re-countered, the board issued a statement recommending its shareholders to accept the revised SAP bid.
Retek officials said that public perception was an unfortunate byproduct of timing and paperwork. Galgano said that Oracle issued its news releases faster than it filed official paperwork and that Retek's board could only publicly comment on what is filed, not what is announced. And once the Oracle counter was officially presented, SAP had already officially countered with a higher bid, forcing the board to endorse that higher bid.
That brings us to another interesting element of this battle. Typically, corporate boards of directors are permitted?no, obligated?to consider all reasonable facts before making a recommendation to shareholders. Which partner will make the best strategic sense for the long term? Which will offer the least painful integration? Which combined entity would be the most powerful competitive force?
The Retek board was legally not permitted to consider any of those things because both Oracle and SAP were offering all-cash bids. Indeed, according to sources at both Retek and Oracle, the SAP and Oracle deals were virtually identical, other than share price. An all-cash tender offer meant that the Retek shareholders would not be shareholders of the combined operation. Therefore, from a legal perspective, the board was instructed to not care about the strategic value because they could only consider shareholder value. In an all-cash deal, that analysis can be handled by an abacus.
One attorney who advised the Oracle board during the discussions said they relied on a Delaware Supreme Court decision in connection with Revlon.
"The role the board plays is to be a fair auctioneer," said the attorney, who asked that his name not be used. "If they had been offering both cash and stock, then it would be a more strategic case. The board would have been allowed to look at the totality. But with an all-cash tender, it's just a question of price per share."
Shortly after Oracle took over the Retek site, it employed a bit of revisionist history, as our colleague Spencer F. Katt discovered. All of the SAP-favoring statements from the Retek news release archive suddenly vanished. Fortunately, they still exist within LexisNexis, which is?for the moment?outside the reach of Larry Ellison.
Once the deal was completed, Angove said, employees and customers were relieved.
"We're fortunate in this case that we did end up with Oracle, because it's certainly what our customers wanted. We're comfortable with Oracle," Angove said, adding that SAP "has been our enemy for a long, long time."
It's certainly a simplistic answer to say that this deal amounts to "my enemy's enemy is my friend," but?in this case?that simplistic answer may have more than a magstripe of truth in it.