On second thought, Microsoft probably won't buy SAP

At the end of the day Tuesday, SAP finally denied speculation that the company might be acquired by Microsoft. But analysts tended to doubt those rumors anyway. Here's why.

SAP AG Chief Executive Henning Kagermann has reportedly finally put rumors to rest that his company has been talking with Microsoft about some sort of acquisition of the German-based software giant. But even in the absence of a flatout denial from either SAP or Microsoft, analysts contacted earlier this week found the possibility a bit hard to swallow -- and wondered how the conjecturing even got started.

To kick off the tempest, a account from the Reuters news agency last night --republished today in a number of US media outlets -- said that shares of SAP had soared in European markets throughout the trading day amid speculation that Microsoft might buy SAP.

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Then, throughout the day Tuesday, the US press offices of both Microsoft and SAP declined comment about the potential deal on inquiries from BetaNews and other news media, with each company consistently citing policies against commenting on "rumors and speculation."

Finally, about an hour and a half away from the US trading day, Reuters issued a second report, this time quoting Kagermann as denying rumors of discussions with Microsoft on Tuesday at a SAP press conference in Boston.

In the first Reuters report, Bruce Richardson, an analyst for AMR Research, was quoted as doubting the rumors on the basis that SAP isn't growing fast enough to be among the types of software vendors Microsoft likes to acquire.

Speaking with BetaNews on Tuesday, James Kobielus, an analyst at Current Analysis Inc., concurred that SAP doesn't meet the profile of the typical Microsoft acquired property. But Kobielus saw some different distinctions.

SAP, he said, is much larger than the sorts of vendors Microsoft generally acquires. "Microsoft isn't at all like Oracle. Microsoft doesn't usually go out and buy companies the size of a PeopleSoft or Siebel," he pointed out.

Beyond that, although Microsoft and SAP have been partnering to some extent for years, Microsoft uses a .NET code base, as opposed to SAP's "100 percent Java code base," Kobielus told BetaNews. The analyst suggested that this lack of similarity in underlying software code might well pose difficulties in integrating product line-ups.

Moreover, he also raised the possibility that, in acquiring SAP, Microsoft might leave itself open to industry fears of monopolization, especially in that both of these huge vendors have been so active in software markets such as BI (business intelligence) and CRM (customer relationship management).

But what could have been the underlying basis of this week's Microsoft/SAP rumor? According to one theory going around, this week's rumor made a certain amount of sense, in that way back during the Microsoft antitrust trials earlier in the decade, Microsoft did admit to earlier talks with SAP about a possible acquisition of the German company.

But Kobielus offered another potential explanation, too. With all of the recent acquisition momentum in the software business, and the December holidays on the way, "the industry just seemed to kind of feel that a major acquisition was somehow due," the analyst said.

In one of these recent acquisitions, SAP is picking up BI software vendor Business Objects, for example.

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