There is yet another rumor circulating about Microsoft acquiring SAP, let’s call this one “version 3,453.2″. I’m not that plugged into SAP anymore so take my comments here with that in mind.
To me this makes no sense at all. Sure Microsoft wants to get a bigger piece of the pie in big enterprise accounts and SAP definitely wants to take a bigger slice of SMB. However, let’s not lose sight of the fact that Microsoft has already sunk about $7 billion into Great Plains and Navision, two product lines that more or less perfectly replicate what SAP has with A1S, and at a significant investment as well.
SAP’s stock has taken a pretty big valuation hit given the poor results from the last quarter. Why would SAP sell itself when the stock is off as much as it is and the forecasts going forward are unlikely to breath any life into the stock (which is in itself a reason to sell one could argue but SAP is not sitting still either). Let’s also not forget that even though SAP is a publicly traded company it still does have to agree to sell itself given that the founders control such a large voting stake and EU regulators would definitely come down hard on Microsoft for any hostile move against the company.
The one part of SAP that reliably generates cash is unfortunately in the part of the market that has little growth. The maintenance part of the business is like an annuity that will generate cash for years to come, but that’s certainly not a good reason to acquire the company when the cost of doing so would be so high. If the part of SAP that is likely to hit some impressive growth numbers, A1S, is a direct overlap of something that Microsoft already has, at great cost, how could they justify an acquisition to their shareholders? Then there is the cultural issues that separate the company, and were identified as a reason for not moving forward when the two companies did acknowledge discussing a merger, and those cultural issues have not dissipated in the 3 years since.
To me this is a non-starter, the announcements to analysts tomorrow are likely to be concerned with currency issues (SAP reports in Euros), guidance adjustment, and/or executive moves. I would not be surprised to see the company announce a succession plan for senior leadership to put to rest media speculation about what Henning is going to do.