Navision develops back-end software designed to help companies manage business affairs such as human resources, accounting and customer relationships. It has been competing against software giants such as SAP and Oracle for larger enterprise customers, and against Microsoft's Great Plains division in the market for smaller and midsize accounts.
"Microsoft and Navision have had parallel lives, each with a deep belief in building long-term customer relationships achieved through lasting commitment to talented, value-adding partners," Microsoft Vice President Doug Burgum said in a press release.
"The combination of these two strong organizations with deeply similar values and approaches makes enormous strategic sense, and will create enhanced opportunities for partners and even more capable and affordable solutions for customers," Burgum said.
Microsoft had been rumored to be considering the Navision purchase for some time. Great Plains, which Microsoftlast year, makes similar software but is focused mainly on the U.S. market.
Navision will become part of Microsoft's Business Solutions division, and its corporate headquarters in Vedbaek, Denmark, will become the center of development and operations for Microsoft Business Solutions in Europe, the Middle East and Africa (EMEA). It will be Microsoft's largest product development center outside the United States.
Jesper Balser, co-CEO of Navision, will become director of global strategy at Microsoft. Co-CEO Preben Damgaard will be director of EMEA operations for Microsoft Business Solutions.
Shares in SAP fell 4 percent in overseas trading Tuesday in reaction to Microsoft's move.
The deal should be mildly dilutive to Microsoft's bottom line, taking off about a penny from earnings per share in the current year and adding to net profits by 2005, Microsoft officials said on a conference call Tuesday.
Gartner analysts Robert Anderson and Yvonne Genovese say the deal, in tandem with other recent acquisitions, will give Microsoft the opportunity to dominate the market for ERP software in the small to lower-end midsize segments.
The Navision acquisition provides a "key international foothold" for Microsoft, said Wells Fargo Securities analyst Jonathan S. Geurkink. About 86 percent of Navision's revenue comes from Europe, while about 85 percent of Great Plains comes from North America. In fact, Great Plains doesn't have any presence in Denmark at all, Burgum said.
"The rationale (for the merger) is not cost synergies, it's about achieving something greater and getting to the vision faster," Damgaard said in a conference call.
The companies expect the merger to close around August and do not foresee any problems getting governmental or regulatory approvals.
Burgum didn't discuss specific plans for combining the two companies' software but said the deal fits into a "better together" theme.
"We believe we can add to the market by doing a better job of offering the various (Microsoft) solutions in specific markets, and in pre-integrating and creating an easier to use suite of products for those customers," Burgum said.
Navision's products are already "very Microsoft-centric," Damgaard said. And both companies have been working to integrate Microsoft's .Net software-as-a-service scheme into their product lines.
"There are distinct product lines and brands today that will come together in the .Net world. In the interim will be solutions that can potentially be expanded from one brand to another," said Tami Reller, vice president of global solutions for Microsoft Great Plains.
The companies will also continue their focus on the small and midsize markets, leaving the larger enterprise customers to competitors like SAP and Siebel. If anything, "we have indicated that we may be moving price points to more down-market," Burgum said.