Microsoft, SAP talked merger

As part of its bid for a foothold in the enterprise applications market, Microsoft Corp. initiated merger discussions late last year with enterprise resource planning leader SAP AG. The talks ended several months ago after Microsoft decided the deal and the post-union integration would be too risky.

The two companies disclosed this during the start of the recent U.S. Department of Justice’s (DOJ’s) lawsuit to block Oracle Corp.’s proposed acquisition of PeopleSoft Inc. The DOJ’s case centres on its argument that a PeopleSoft/Oracle combination would adversely consolidate the high-end ERP market, which the DOJ sees as including only SAP, PeopleSoft and Oracle. Oracle’s counter-argument is that the ERP market is a highly fragmented one, in which the industry’s leaders are under constant pressure from new entrants, like Microsoft.

Microsoft and SAP traditionally do not disclose information about merger or acquisition discussions. The companies said they chose to comment this time because of the likelihood news of their discussions would emerge during the DOJ/Oracle trial, which is taking place in U.S. federal court in San Francisco. Both sides plan to call Microsoft executives as witnesses. SAP and Microsoft said in written statements that they have no intention of reviving their merger talks.

Both sides cast Microsoft as the suitor. SAP said Microsoft raised the idea of a merger during discussions about a joint development partnership around Web services. While the idea of combining the two companies fell apart, the joint-development talks led to an agreement on plans for interoperability between Microsoft’s .Net platform and SAP’s NetWeaver. That agreement was announced last month.

Microsoft began edging into the ERP market several years ago by purchasing Great Plains Software and Navision, which it has combined to form a unit called Microsoft Business Solutions (MBS). For now, that group focuses on selling to small- and medium-sized busi

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