Microsoft held merger discussions with business software company SAP, executives have revealed as part of the Oracle court case.

In order to gain a foothold in the enterprise applications market, Microsoft said it initiated merger discussions late last year with ERP leader SAP. The talks ended several months ago after Microsoft decided the deal and post-union integration would be too risky.

The two companies disclosed their talks today, as the trial began over Oracle's proposed acquisition of PeopleSoft. The trial has been brought by the US Department of Justice in an effort to block Oracle's aggressive bid because it claims such a reunion would damage competition. With PeopleSoft out of the way, the only real competitor to Oracle would be SAP, the DoJ maintains.

Oracle's counter-argument is that the ERP market is a highly fragmented one, in which the industry's leaders are under constant pressure from new entrants, like Microsoft.

Microsoft and SAP traditionally do not disclose information about merger or acquisition discussions. The companies said they chose to comment this time because of the likelihood news of their discussions would emerge during the trial. Both sides plan to call Microsoft executives as witnesses. Both sides said in written statements that they have no intention of reviving their merger talks.

Both companies say Microsoft was the suitor. SAP said Microsoft raised the idea of a merger during discussions about a joint development partnership around Web services. While the idea fell apart, the joint-development talks led to an agreement on plans for inter-operability between Microsoft's .Net platform and SAP's NetWeaver, announced last month.

Microsoft began edging into the ERP market several years ago by purchasing Great Plains Software and Navision, which it has combined to form a unit called Microsoft Business Solutions. For now, that group focuses on selling to small and medium-sized businesses. SAP targets smaller companies, but the bulk of its business is from large organisations buying complex systems for accounting, sales and human resources management.