Cloud Computing Provider Ariba to Be Purchased by SAP for $4.3B

SAP AG has announced its agreement to purchase online trading platform Ariba Inc. for the total amount of $4.3 billion.

SAP AG is the world’s largest vendor of enterprise application software, and this purchase will allow the German company to keep up in features and capabilities with its biggest software rival, Oracle Corp., which continues to aggressively add cloud computing capabilities via acquisition.

In the past, SAP had shied away from making large deals such as this, while Oracle, in contrast, had been buying out rivals. Apparently, SAP’s strategy has changed with its new co-CEOs Jim Hagemann Snabe and Bill McDermott, who replaced former CEO Leo Apotheker.

“Cloud-based collaboration is redefining business network innovation, and we are catching this wave in the early stage of its evolution,” Snabe and McDermott said in a joint statement.

Ariba is one of the largest cloud vendors in the world and is currently a leader in cloud-based collaborative commerce applications. Its network encompasses over $319 billion worth of collaborations and commercial transaction in nearly 740,000 companies all over the world.

While majority of SAP's current implementations use it to optimize and automate internal business processes, the company has been looking at ways to expand it's applications software offerings to allow it to automate business transactions with outside companies. This purchase of Ariba takes it right to the fore front of collaborative B2B software.

The company will pay $45 for each share of Ariba – an amount that is 20% higher than the price for which Ariba closed yesterday. It is expected that the transaction will completed between July and September this year, with the approval of the regulators and shareholders of Ariba.

As Cross Research analyst Richard Williams stated, there is a possibility for other bidders to come forward. “There's a history of bidding wars between SAP and Oracle and this is exactly the kind of strategic company that would spark something like that." New Jersey–based Cross Research has a hold rating on SAP.

SAP chief financial officer Werner Brandt said that, excluding some 2013 items, this deal will be adding to the company’s profit. SAP got financial counsel for the sale from Deutsche Bank AG while Ariba received consultative input from Morgan Stanley.