Five Questions on SAP’s Acquisition of Business Objects

SAP (SAP) took a rather big plunge with its $6.8 billion acquisition of Business Objects (BOBJ) and left the business intelligence market much smaller than it was a day ago.

Here are some lingering questions that remain to be resolved:

Can SAP digest a large acquisition? Business Objects is SAP’s largest acquisition (Techmeme, statement) and represents a sea change since the ERP giant has touted its organic growth in recent years relative to Oracle’s (ORCL) acquisition strategy. As a result, SAP is untested when it comes to integrating big deals. Business Objects will run as a separate unit, but it’s hard to believe that situation will last indefinitely. Part of SAP’s calculus with the Business Objects deal is to stay within the EU–that plan should ease any management and cultural hurdles.

Why the switch? SAP has lambasted Oracle’s acquisition strategy. What caused the attitude change? Was it the goal of reaching 100,000 customers? The appeal of the midmarket? As Dennis Howlett notes, SAP just validated Oracle’s strategy. Look for Oracle to crank up the FUD machine. Wall Street analysts opine that its unlikely SAP will follow Oracle’s path completely. SAP wants to get the Business Objects acquisition right before pursuing others.

How long can Cognos (COGN) stay independent? Now that Business Objects is off the table there are few large business intelligence players left. Cognos is now the big dog. In conversations with Cognos executives, the company has staked out being independent as an advantage. That’s true to a degree–Cognos will most likely wind up being an Oracle unit along with Hyperion. Perhaps Microsoft (MSFT) would be interested in Cognos. Bank of America analyst Daniel Cummins said in a research note that Cognos has similar products to Business Objects but has a tighter focus on “strategic operational and financial applications (as supposed to tools to build such applications).” In any case, Cognos will be in play.

What caused Business Objects’ profit warning? SAP is paying a 19 percent premium for a company that just issued a profit warning. Few noticed, but Business Objects cut its third quarter outlook as soon as the SAP deal was announced. Business Objects now sees third quarter revenue of $366 million to $370 million and earnings of 36 cents a share to 39 cents a share. The previous guidance called for revenue of $382 million to $387 million and earnings per share of 43 cents a share to 47 cents a share. Thomas Weisel analyst Tom Roderick dismisses Business Objects’ profit warning to “pipeline management” ahead of the SAP merger. But the miss does make you wonder given Cognos reported a strong quarter.

Did SAP pay too much? A case can be made that SAP paid too much. SAP paid a premium to Business Objects closing price of $50.27 on Friday. The problem: Business Objects closed at $44.97 on Sept. 28. What a difference a week makes.