SAP pays dear for game-changing Sybase deal

(Reuters) - SAP's (SAPG.DE) planned buy of Sybase (SY.N) for $5.8 billion to stay in the mobile data race with arch rival Oracle (ORCL.O) is raising concerns the German software company may be paying too much.

Deals | Germany

Just three months into their new jobs, co-chief executives Bill McDermott and Jim Hagemann Snabe announced on Wednesday what would be the second-largest acquisition in SAP's near 40-year history after SAP's purchase of Business Objects in 2008.

SAP has agreed to pay $65 per share in cash for Sybase, which is the world's No. 4 provider of database software -- a 56 percent premium to Sybase's Tuesday closing price on the New York Stock Exchange.

Last month, the far more acquisitive Oracle bought Phase Forward (PFWD.O), the top maker of programmes that help drugmakers run clinical trials, for $685 million, a 30 percent premium at the time.

"With even Sybase saying 'the stock hadn't closed above $50 since the mid-1990's' we think this will not hurt SAP's reputation for overpaying," UBS analyst Michael Briest wrote in a note.

SAP paid 4.8 billion euros ($6.1 billion) for Business Objects, a 20 percent premium at the time.

SAP shares were down 2 percent to 35.34 euros by 1246 GMT (8:46 a.m. EDT), among the leading decliners in Germany's blue-chip DAX index .GDAXI as analysts questioned the hefty price tag.

SAP is buying Sybase at a time when the shares are almost at an all-time high. They hit $48.20 on March 23 and had come off a little before Wednesday's news of the takeover offer.

The bid values Sybase at 24.4 times expected 2010 earnings, according to Thomson Reuters I/B/E/S StarMine SmartEstimates, above SAP's own 17.4 times but below the U.S. systems software sector average of 35.4.

Straying from the company's careful acquisition strategy of the past, SAP's move is seen as a full blown attack on Oracle, who was the first major software maker to aggressively pursue acquisitions and has spent more than $42 billion to buy about 60 companies.

"SAP finally learned that they should take some clues from Oracle's playbook. They finally woke up," said Trip Chowdhry, an analyst with Global Equities Research. "They are late, but late is better than never."

Sybase shares surged 56 percent in Frankfurt (SYBS.F) on Thursday and had risen to $64.50 in extended trade in New York on Wednesday.

ATTACKING RIVALS WITH MOBILE

SAP argued the Sybase deal made strategic sense because it will allow the German company to benefit from the "explosion in mobile data" especially in the Asian-Pacific region where Sybase had a strong presence.

California-based Sybase sells programs that make it easy for workers to access business software via smartphones and other mobile devices. SAP already uses the technology to let customers access its applications when they are on the road.

Sybase also sells a powerful database that large companies, such as banks, use to store sensitive information. It is the fourth-largest maker of database software after Oracle, IBM (IBM.N) and Microsoft Corp (MSFT.O).

Jefferies & Co analyst Ross MacMillan said Sybase's most valuable asset is its mobile software because it will give SAP an edge over Oracle when it comes to allowing customers to use business management programs on the go.

The move allows SAP to provide a more credible "mid-market" solution and excel at its mobile offering, becoming key in the market and attracting device manufacturers such as RIM (RIM.TO) Apple (AAPL.O), Google (GOOG.O), analysts said.

Mobile software products only accounted for about 27 percent of Sybase's $403 million in software sales last year. The bulk of revenue came from Sybase's database, which is rarely used in conjunction with SAP's software products.

MacMillan said it was not clear how the Sybase database would fit into the rest of SAP's business of selling software for managing business tasks, such as accounting, human resources and manufacturing.

"The question I have is: what's the plan with the database business? Reading between the lines, it's not really growing, but it's highly profitable," MacMillan said.

($1 = 0.7872 euro)