German regulators are looking into a downward revision of SAP AG's net profit report for the first half of the year, a spokeswoman at the Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt für den Wertpapierhandel or BAWe) confirmed Wednesday.
Last Thursday, business software vendor SAP issued its second-quarter report, but over the weekend said it looked like it would be issuing a revision owing to its investment in business-to-business vendor Commerce One Inc. The BAWe is looking into the possibility that, under German law, SAP should have publicly stated that information sooner, especially in light of the strong gains SAP made on the German stock exchange on the Thursday and Friday after its positive financial report was released, a BAWe spokeswoman said. "It is true that we are investigating SAP (concerning its first half downward correction). We have just started looking into the matter and right now it is just routine, said Reimer Sabine, the BAWe spokeswoman said.
A formal case could be brought against SAP, Sabine said, but she doesn't think such a decision will come this week. "I think it will take some weeks to complete (the inquiry)," Sabine said.
If a formal case were to be initiated, the highest possible fine SAP could face would be 3 million marks (US$1.35 million). But no company has as yet faced a fine greater than 200,000 marks, Sabine added.
According to German law, companies that are traded on the German stock exchange must publish an "ad hoc release" through BAWe's official electronic press release system if the company has any information that could possibly affect its share price, Sabine said.
A spokesman for SAP said that the company was aware of the BAWe probe but stressed that the company had done nothing wrong and is not the subject of a formal investigation.
"It's is not an investigation as such. It is a completely routine action by the BAWe and not in any way a formal investigation," according to the spokesman who asked not to be named as per SAP policy.
Due to the first half loss by Commerce One, which was initially unaccounted for in SAP's first half earnings report, SAP's first-half earnings would be restated downward by between 105 million euros (US$92 million) and 110 million euros, the spokesman said. The revised earnings would appear in SAP's third-quarter financial report, due Oct. 18, he said..
In June, SAP announced that it had increased its stake in Commerce One from 3 percent to 20 percent, and planned to inject up to $225 million in new investment capital in the Pleasanton, California-based company. Last Thursday, both companies released their second-quarter earnings, with SAP reporting a net profit of 323 million euros in the first half of 2001. That same day, SAP's share price on the German stock exchange increased by 11 percent, according the Web site, EuropeanInvestor.com.
In contrast, Commerce One reported its net loss for the current quarter was more than US$2 billion, or $9.02 per share.
SAP was unaware of the contents of the Commerce One earnings statement when it first released its own report, according to the SAP spokesman. But most importantly, he added, SAP's planned investment in Commerce One has yet to be approved by U.S. antitrust regulators.
"The downward revision would occur due to the planned increase of our stake in Commerce One. But that wouldn't happen until it is approved by such parties as U.S. antitrust agencies and this action is, so to say, 'live.' Let's assume that it is approved in the next several weeks, we have to restate our net income for the first and second quarters," he said.
"We clearly stated our position with Commerce One in our statement. And it is important to say that this is not due to SAP operations, that is a noncash position and that there is no cash flow involved," the SAP spokesman said.
SAP is listed on both the German stock exchange and the New York Stock Exchange. A spokeswoman at the U.S.Securities and Exchange Commission said the SEC could not comment on whether SAP could face a similar inquiry in the U.S. because the SEC does not make such information public and its policy is to not discuss individual cases.