updated 3/17/2005 8:34:52 PM ET 2005-03-18T01:34:52

Business software maker SAP AG increased its offer for retail software maker Retek Inc. by 29 percent Thursday, intensifying a takeover tug-of-war with industry rival Oracle Corp.

SAP's $11-per-share bid for Minneapolis-based Retek tops an Oracle offer of $9 per share made after Germany-based SAP had already struck a deal at $8.50 per share. Based on Retek's outstanding stock as of Feb. 25, SAP's all-cash bid is worth $617 million, nearly two times Retek's market value before the auction began.

Although Retek's board of directors unanimously accepted SAP's sweetened offer, investors appeared confident that Oracle would raise the stakes once again.

Oracle did not return calls seeking comment Thursday. But AMR Research analyst Bruce Richardson said he would be stunned if the Redwood Shores-based company doesn't up the ante. "I don't think Oracle is going to let this one go. This could go back and forth for a while."

When Oracle entered the bidding last week, the company's management vowed to keep Retek out of SAP's clutches, although the executives stopped short of promising to win at any cost.

If it prevails, Oracle would have to pay an even higher surcharge. As part of its new deal with Retek, SAP raised the break-up fee to $25 million, up from $15 million previously. Retek would likely require Oracle to pay the fee.

The gamesmanship pits the world's two leading makers of business applications software _ the computer coding that automates a wide range of administrative tasks. SAP has long been the industry leader, but Oracle closed the gap two months ago by buying PeopleSoft Inc. for $10.3 billion after a heated battle that dragged on for 18 months.

Oracle is still trying to cobble PeopleSoft's operations into its own as it strives to boost its profit by at least $400 million in the fiscal year ending in May 2006. That formidable task has caused some analysts to question the wisdom of pursuing another deal. It also doesn't help matters that Oracle late Thursday announced the unexpected departure of its chief financial officer, Harry You.

But Oracle management believes Retek can be easily digested because it's so small. With just $174 million in annual revenue and 525 employees, Retek is a niche player in the industry.

Nevertheless, the company holds tremendous appeal for both SAP and Oracle because its 200 customers are retailers — a group that hasn't bought as much business applications software as many other industries.

By acquiring Retek, SAP and Oracle are betting that they will be better positioned to sell an array of software products to retailers looking to upgrade their technology.

Not surprisingly, both Oracle and SAP depict themselves as the best option for Retek's customers, as well as it shareholders.

Oracle says the transition under its ownership would be painless because it already has sold database software and other products to about 80 percent of Retek's customers. SAP board member Leo Apotheker contends his company would empower Retek customers with "a deep industry knowledge that they could not get from any other software combination."

Whichever company ends up with Retek could regret it in the long run, analyst Richardson said. That's because the loser in the bidding battle might use the extra cash and time to negotiate a takeover of an even bigger software maker while its rival is busy trying to make the Retek deal work.

"This could turn into a chess game with a lot of pieces of involved," Richardson said.

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