SAP to buy Ariba, boosts cloud bet

(Reuters) - Top European software company SAP (SAP.XE)AG plans to buy U.S. software maker Ariba Inc in a deal valuing the company at $4.3 billion in a bid to compete more aggressively against rival Oracle in the fast-growing cloud computing market.

SAP and Ariba, a darling of the first dotcom boom that has since reinvented itself as a major networking and online commerce software developer, have agreed to the acquisition at $45 a share, a 20 percent premium over Monday's closing price.

The purchase of Ariba, based in Sunnyvale, California, would be the latest in a string of acquisitions by German technology company SAP to help fuel its revenue growth.

Oracle, the world's No. 2 maker of business management software, and SAP are both trying to catch up with cloud leader Salesforce.com Inc, which was started over a decade ago by former Oracle executive Marc Benioff.

SAP's deal values Ariba at 6.9 times expected 2013 revenue, according to Roth Capital Partners. Salesforce.com trades around 5.5 times expected revenue.

SAP said it expected the deal, already approved by Ariba's board, to close in the third quarter.

Ariba shares closed up 19.2 percent to $44.87 on Nasdaq on Tuesday, suggesting investors expect the deal to be completed around that price. Ariba shares had been halted prior to the announcement of the deal.

The deal puts Ariba's enterprise value at about $4.3 billion. Enterprise value is market capitalization plus debt and other considerations.

Evercore analyst Kirk Materne said SAP was paying full value for Ariba, but that the company is "obviously a fairly unique asset that would seem to be a good fit with SAP's revamped cloud strategy."

Cross Research analyst Richard Williams said SAP was underpaying for Ariba.

"We think a counter-bid is likely and have raised our target to $50 from $40," Williams said.

Cloud computing refers to providing software, storage, computing power and other services to customers from remote data centers over the Web.

Demand for cloud-based software is rising rapidly because the approach allows companies to start using new programs faster and at lower cost than traditional products that are installed at a customer's own data center.

In February, Oracle increased its bet on cloud computing by agreeing to purchase Taleo Corp, a maker of Web-based software for recruiting employees, for about $1.9 billion.

SAP said its transaction would be funded from its free cash and a 2.4 billion euro ($3.06 billion) term loan facility.

The European company also said it would consolidate its cloud-based supplier assets under Ariba, which would continue to operate as an independent business.

(Reporting by Jim Finkle in Boston and Sayantani Ghosh in Bangalore; additional reporting by Noel Randewich in San Francisco; Editing by Viraj Nair, Carol Bishopric, David Gregorio and Phil Berlowitz)

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