Rumors of Oracle Acquisition Lift Business Objects

Last Friday, the chatter was — once again — that acquisition-hungry Oracle (ORCL) is going to make a play for Business Objects. A potential acquisition by one of the largest software makers in the world is enough to put dollar signs in any investor's eye. One analyst estimates that Business Objects could fetch as much as $50 a share in a buyout. The rumors helped the shares climb 4% in two days to close at $37.91 Monday. But investors may not want to jump into the stock based solely on the company's potential for a speedy takeover.

"If Oracle were going to pick up Business Objects they would have done it a lower price," says Michael Nemeroff, an analyst at Wedbush Morgan Securities. He notes that Business Objects was much more attractive last July, when an earnings miss pushed the stock to a 52-week low of $19.01. Nemeroff, however, doesn't dismiss the possibility of an acquisition sometime in the future. It just probably won't happen soon. (Wedbush Morgan makes a market in Business Objects' stock.)

Even without a buyout, there's still some room for growth in Business Objects' stock — just not $50 a share worth. Business Objects is a leading company in one of the most lucrative niches of the software industry: business intelligence. BI applications gather and analyze all sorts of data in order to help companies make better decisions. For example, a BI application could track the number of women's green turtleneck sweaters sold at every Wal-Mart across the country, then cross-reference that data with weather patterns and the number of women living around each location to determine how many green turtleneck sweaters should be shipped to each store. While the software industry as a whole is expected to grow sales by 6% to 8% this year, sales of BI software are expected to double that pace.

"Clearly the BI sector has been a space that has had a lot of chatter regarding attractive assets," says Susquehanna Financial analyst Jason Kraft. In fact, Kraft notes that all of the stand-alone BI names, including Business Objects' competitors Cognos (COGN) and Hyperion Solutions (HYSL), have also been subjects of takeover speculation by large software vendors like Oracle and SAP (SAP). Susquehanna makes a market in the company's shares.

Business Objects spokesman Peter Olson says the company doesn't comment on rumors. He did note, however, that the company has no plans to sell. "We think independent BI is what our customers want," he says.

But when Oracle is involved, those words may not hold much water. Just recall Oracle's $10.3 billion hostile takeover of PeopleSoft a couple of years ago. In fact, it was during the Department of Justice's review of the PeopleSoft deal that Oracle first revealed its "hit list" of acquisition targets. On the list was Business Objects, and Oracle has proven that it's not afraid to spend some cash to get what it wants. After PeopleSoft, it went on to buy 25 more companies, including its $5.85 billion purchase of Siebel Systems last year. Oracle officials didn't return phone calls seeking comment on Business Objects.