The world's biggest software firm, which has faced antitrust action in both Europe and the United States, confirmed the discussions with SAP, saying this was expected to be used in evidence at the government's antitrust suit against Oracle Corp. which is bidding for rival PeopleSoft.

"Due to certain confidential information obtained from Microsoft Corp. in the pretrial discovery process that Oracle Corp. is expected to raise at the trial concerning the US Justice Department's lawsuit to block Oracle's takeover of PeopleSoft Inc., Microsoft will, in this instance, depart from its longstanding policy of not commenting on discussions related to potential mergers and acquisitions," the company said in a statement.

Microsoft said that late last year "it initiated preliminary discussions with SAP AG to explore the possibility of a potential merger between the two companies."

A few months ago, Microsoft "ended these discussions due to the complexity of the potential transaction and subsequent integration," the statement said. "There are no intentions to resume these talks."

After the merger talks ended, the two companies held other discussions that resulted in a deepened relationship on Web services and a patent cross-licensing agreement between them," the statement added.

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