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Little-known Minneapolis software maker now a hot property
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Two giant software firms are vying to buy Minneapolis-based software maker Retek, which develops software for the retail industry. (MPR Photo/Bill Catlin)
Two giants who are bitter rivals in the software industry are battling to buy little-known Retek, a Twin Cities software firm that's tiny by comparison.

Minneapolis, Minn. — Retek makes software that helps retailers manage their stores and merchandise. Best Buy, Gap, and Nordstrom are among Retek's more than 200 customers.

Retek has accepted an offer from SAP, but is now studying a higher bid from Oracle. Both SAP and Oracle are multi-billion dollar companies making software that helps businesses with a variety of functions, such as managing their finances and human resources. Both dwarf Retek's less than $200 million in sales.

Oracle recently spent $10 billion to buy rival PeopleSoft. Oracle CEO Larry Ellison last week acknowledged his new target won't add much to Oracle's sales.

"They barely move the needle," Ellison said. "We're considerably larger company than Retek. Our sales will be between $14 billion and $15 billion this coming year. Retek will not have significant impact one way or another on that."

Our sales will be between $14 billion and $15 billion this coming year. Retek will not have significant impact one way or another on that.
- Oracle CEO Larry Ellison

The same is likely true for SAP, which already sells some of its products to retailers.

So why are Oracle and SAP vying for a company that would barely move the financial needle?

"They're relatively teeny compared to a PeopleSoft, but in retail they're rather huge," says Paula Rosenblum, a retail expert with the research firm Aberdeen Group.

Rosenblum says Retek has an important client base. She says both SAP and Oracle are betting that retailers will be spending more on the kind of software packages Retek develops.

"Retailers have systems that they built on their own, because they believed they were each unique. There's a sense that those applications are old and starting to groan, and that potentially they will turn to a package solution," says Rosenblum.

Oracle President Charles Phillips says the retail industry is undergoing dramatic change, and is under pressure to become more efficient through automation. He cited factors like recent mergers, Internet sales, and an increasingly complex mix of merchandise. Think Target and Wal-Mart selling groceries.

SAP has a similar refrain, saying retailers increasingly view information technology as a strategic tool that can help their business grow.

But Piper Jaffray analyst Tad Piper says it's not just about retail. He says Retek opens the door to more customers for SAP and Oracle's current products.

"That's the way they look at this. It's very important to have a solution that gives you an entrée into the retail sector, which I think both companies view as a market that neither one of them has particularly penetrated, and potentially is a large untapped market for them to sell solutions to over many, many years," says Piper.

There are other issues as well. Oracle says Retek has been a partner for years, and Retek products are based on Oracle technology. The two firms held merger talks last fall, but Oracle officials say integrating PeopleSoft distracted them.

And then there's rivalry.

In a conference call with investors, Oracle CEO Larry Ellison said it's important to defend his company's No. 1 position in North America from SAP.

RBC Capital Markets analyst Brad Whitt says SAP has been pursuing the retail market and has more experience there than Oracle. While SAP says integrating its products with Retek's would be swift and painless, Whitt says Retek's technology is more compatible with Oracle's. He says that will help Oracle win the battle for Retek.

"The customers are going to look at it and say, 'You know, we'd probably rather have Oracle, because at least we know our technology isn't going to be changing in the near future. And maybe we can live with them not knowing our business that well, better than having to rip out and put in a new system down the road,'" says Whitt.

Retek officials did not return calls for this story. SAP officials said last week they're waiting to hear from Retek before deciding how to respond to Oracle's higher bid.

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