German software company SAP is to acquire its French rival in a €4.8 billion friendly takeover that brings together two of Europe's largest software companies.

SAP is offering €42 in cash for each Business Objects share, a 20 per cent premium on Business Objects' closing price in Paris last Friday, the last day of trading before the deal was announced.

The Business Objects board is recommending that shareholders accept the offer, which is subject to regulatory approval. The two companies expect the transaction to close in the first quarter of next year.

Stock markets reacted badly to the announcement, with SAP's share price dropping 6.4 per cent in Frankfurt yesterday. The deal is the biggest purchase in SAP's 35-year history and will reduce earnings per share next year, before adding to profit in 2009.

SAP provides software applications, such as accounting, enterprise resource planning and customer relationship management, to 41,200 customer companies in more than 120 countries worldwide.

Business Objects specialises in the area of business intelligence - taking data from other applications and running reports on that data so that meaningful trends can be identified.

SAP has been increasingly under pressure from database giant Oracle, which has been building up the portfolio of applications that it offers to run on top of its database products. The US company run by Larry Ellison has spent more than $25 billion on purchases since 2005.

SAP will operate Business Objects as a stand-alone business and there are not expected to be job losses at either firm as a result.

Both companies have significant operations in Ireland. SAP employs 640 people at sites in Dublin and Galway. In addition to an Irish sales operation, its main activity in Ireland is providing global support to customers from Dublin and Galway.

In 2005, Business Objects established its European operations centre in Dublin's Park West and centralised a number of its European functions there, where it employs more than 200 staff.

Speculation had been rife that Business Objects was on the block after a report appeared in French newspaper Le Figaro in mid-September saying that the firm had appointed Goldman Sachs to look for a buyer.

That prompted chief executive John Schwarz to send an e-mail to all staff reminding them it was company policy not to comment on rumours because they "distract us from our business at hand".

Crucially though, Mr Schwarz did not deny that an acquisition was in the offing.