SAP CEO Steps Down

SAP said CEO Bill McDermott wouldn’t seek another term. Photo: Star-Media/Interoptics/Zuma Press

German business-software giant SAP SE Thursday said Chief Executive Bill McDermott is being replaced in the role with immediate effect.

SAP named two executives, Jennifer Morgan and Christian Klein, to serve as co-CEOs. Mr. McDermott, 58 years old, will act as an adviser until the end of the year, the company said.

Mr. McDermott became CEO in 2014 after rising through SAP’s ranks, starting as the CEO of SAP America in 2002 and becoming co-CEO of the entire company in 2010. Prior to SAP, he had spent nearly two decades at Xerox Corp.

Activist investor Elliott Management Corp. in April said it had taken a stake worth €1.2 billion ($1.32 billion) in SAP, calling the business-software company undervalued.

SAP earlier this year announced a nearly $1 billion restructuring program, including plans to cut about 4,000 jobs. Three months later, in April, it announced plans to sharply boost earnings, which included more than tripling cloud-computing sales by the end of 2023. The new targets, along with the disclosure that Elliott had become an investor, spurred a rally in SAP’s shares.

SAP profitability, though, has lagged behind that of global peers. SAP’s second-quarter earnings, announced in July, missed analysts’ profit expectations, and shares retreated. The stock is down 14% in the past three months.

Ms. Morgan, 48, joined SAP in 2004 and most recently ran its cloud-computing business. Mr. Klein, 39, was SAP’s chief operating officer.

The new chiefs take over at a time of intense competition for a slice of the fast-growing and lucrative cloud-computing and business-software market. More companies are choosing cloud-computing vendors and moving these functions online instead of doing them in-house, and are transitioning to new software tools in the process.

SAP has struggled to keep pace with rivals such as Inc., which has used acquisitions to expand its position in customer-relationship software. Salesforce now holds a 17% market share by sales compared with SAP’s 5.6% share, according to International Data Corp. figures.

SAP has also looked to acquisitions to bolster its ambitions. In 2014, it bought Concur Technologies, which makes software to manage employee expenses, for $8.3 billion. It also acquired SuccessFactors in 2011 for $3.4 billion, giving it a foothold in the area of cloud-based software for human-resources management.

Though SAP has had a co-CEO structure before, power-sharing arrangements like that are rarely attempted at the top echelons of the corporate world because they can lead to conflict. Still, SAP rival Oracle Corp. had been using a similar setup until one of its CEOs, Mark Hurd, last month said he would take leave for medical reasons. Office-space rental firm We Co. last month also named two executives to replace founder and CEO Adam Neumann, who agreed to step down under pressure from the board.

SAP Chairman Hasso Plattner called the work-sharing arrangement “time-tested at SAP with multiple prior instances of success.”

Mr. McDermott “was a main driver of SAP’s transition to the cloud, which will fuel our growth for many years to come,” Mr. Plattner said. The decision to tap the co-CEOs as Mr. McDermott’s eventual replacement was taken more than a year ago when each was given more responsibility, Mr. Plattner added.

SAP on Thursday also announced preliminary third-quarter results, including per-share earnings of €1.04, beating analysts’ expectations of €0.82 per share.

The strong earnings helped boost SAP’s American depositary receipts by around 5% in after-hours trading.

Write to Asa Fitch at [email protected]

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