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. Last Updated: 07/27/2016

Business Objects Bid Spooks SAP Investors

PARIS -- SAP shares dropped more than 5 percent Monday on fears the German software company's 4.8 billion euro ($6.79 billion) bid for Business Objects will dent earnings because of the high price of the deal and disappointing results from the French company.

SAP's offer of 42 euros ($59.35) per share in cash, announced Sunday night, is a 20 percent premium over Business Objects' closing price Friday. The German company said it expected the transaction to reduce earnings per share next year, before adding to profits by 2009.

SAP on Monday defended the 20 percent premium it was prepared to fork out to snap up French-U.S. software group.

"The valuation of Business Objects is "not abnormal" in comparison to recent acquisitions in the sector ... it's a balanced valuation in view of the enterprise value of Business Objects," SAP deputy CEO Leo Apotheker told a news conference in Paris.

Chief Executive Henning Kagermann said acquiring Business Objects, whose "business intelligence" tools help top corporate executives track their company's performance, keeps with SAP's strategy to double its market by 2010.

The move by SAP, the world's largest maker of business software to help companies do back-office work such as payroll, inventory management and accounting, into so-called business intelligence taps a fast-growing market.

It follows a similar transaction by SAP's competitor Oracle, which recently acquired a Business Objects competitor, Hyperion, for $3.3 billion.

Shares in SAP fell 5.3 percent to 39.44 euros ($55.75) in Frankfurt. Business Objects rose 17 percent to 41.01 euros ($57.97) in Paris after a trading suspension was lifted.

"This deal raises serious concerns, in our view, which should cause the market to reconsider the current premium rating for SAP's shares," French bank Societe Generale said in a research note.

Exane BNP Paribas said SAP's offer seems a "very attractive price" that is unlikely to be increased by another bidder.

The announcement coincided with a disappointing earnings announcement from Business Objects. The world's largest producer of database management solutions for corporate customers said third-quarter sales were between $366 million and $370 million, less than its July forecast.

In 2006 the company had a net profit of $75.4 million on sales of $1.25 billion.

Under the deal proposed, Business Objects would operate as a standalone business as part of the SAP Group, the companies said. John Schwarz would continue as the CEO of Business Objects and is expected to become a member of SAP's executive board.

The friendly agreement has been approved by the supervisory board of SAP and the board of directors of Business Objects, the companies said in a statement. SAP, based in Walldorf, Germany, said the board of Business Objects expects to recommend the offer to its shareholders.