Oracle Goes for BEA

Last week Oracle made a $6.7 billion $17 per share bid for BEA. If the deal were to go through it would be Oracle’s 35th acquisition since 2005 and bring the total of those acquisitions in that three year period to over $31 billion. It is clear why Oracle is interested. As BusinessWeek puts it, ” BEA brings valuable assets, including a huge customer base, a large revenue stream, and a reliable set of products centered on middleware, the software that helps glue together disparate programs.” Technology Business Research analyst Stuart Williams, quoted in BusinessWeek’s piece wrote, “Oracle can integrate the BEA technology directly into the core of the Oracle stack, strengthening it, while at the same time removing a competitor and adding close to $1.4 billion in annual revenue to its coffers.” What is unclear is if the deal will go through. The offer was rejected.

After the news was announced speculation immediately began about whom, if anyone would make a counter offer. At the top of the list was SAP, the world’s largest maker of business-management software. Though not making the leaps in acquisitions that Oracle has, SAP showed its interest in high dollar acquisitions earlier this month when it agreed to buy Business Objects, the world’s largest maker of software used to track corporate databases, for $6.8 billion on October 7. However, SAP says it is not interested in BEA. Bloomberg refers to SAP spokesman Frank Hartmann and states, “SAP won’t make a counter-offer because of the overlap BEA would create in enterprise service-oriented architecture.” Furthermore, SAP has stated they are more interested in organic growth. “We believe in complementary deals. We’re not interested in a classic consolidating of markets,” Henning Kagermann, SAP Chief Executive Officer told the Financial Times. It should also be noted that while the purchase of Business Objects demonstrated the SAP’s ability to pull off a big money deal, it was by far the company’s largest deal. SAP’s second largest deal was in 2001 when it purchased TopTier Software Inc. for $400 million. Some are suggesting that for the time being SAP’s hands are tied.

BEA says the offer was rejected because Oracle’s bid was significantly below the company’s value. In a letter sent on Friday to Oracle’s president, Charles E. Phillips Jr., William M. Klein, BEA’s vice president for business planning and development, wrote, “BEA is worth substantially more to Oracle, to others and, importantly, to our shareholders.” The company’s stock price may be evidence to that point. notes, “That BEA continues to trade above $18 suggests that the market views Oracle’s offer of $17 a share as too little, too early.” On the flip -side, however, is the thought that the current stock price could be, as Bloomberg suggests, due to “speculation rival suitors will emerge.” SAP may have been the first thought of many analysts, but it was not the only one.

Carl Icahn, whose 13.2 percent ownership makes him BEA’s largest shareholder, believes that Oracle’s offer was too low and that rival bids should surface. Icahn thinks BEA should be looking for a suitor and has suggested that companies such as Hewlett-Packard and IBM would be interested. Thomas Curlin, an analyst with RBC Capital Markets, also sees others, including HP, as possible candidates, “We believe HP has the greatest strategic need of any of the large suite vendors.” As far as a price, Curlin suggested, “a strategic acquirer may be willing to pay $25 a share.” Forrester analyst Ray Wang concurs, “There are a number of vendors, including SAP, IBM and H-P, that need BEA more than Oracle does. It’s definitely not over.”

Not all analysts are in the same camp. “While there could be other potential bidders for BEA, we do not believe it is likely that they will aggressively step forward in this case,” writes Andy Neff, of Bear Stearns. Citigroup analyst Brent Thill wrote, “HPQ has publicly stated they are not interested, although a deal would make strategic sense.”

Though Phillips stated that, “Our proposed price is a substantial premium to an already-inflated stock price,” there is also the possibility that Oracle will raise the offer. The New York Times writes, “Oracle has shown a willingness in the past to raise offers, and analysts expected it to do so again.” As evidence the Times refers to Oracle’s 2004 acquisition of PeopleSoft. The initial offer in 2003 was $16 per share; by the time the deal was closed they paid $26.

It may take some time to see who goes home with the prize, but it is unlikely the game will end here.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light’s Software, Computers & Services Market Intelligence Center.

And in the following articles:

SAP Rules Out Bidding War with Oracle for BEA Systems
Bloomberg, October 15, 2007
SAP AG, the world’s largest maker of business-management software, won’t enter a bidding war with rival Oracle Corp. for BEA Systems Inc. and will focus on making “complementary” acquisitions.

BEA Awaits Sweeter Deal, October 15, 2007
Shares in middleware developer BEA, which has been revisiting its earnings reports from the past several years, have been stalled this year by the company’s limbo status. And as BEA prepared to wrap up financial restatements, Oracle jump-started what still may become a bidding war, trying to force BEA’s hand while the stock still looked cheap.

SAP Says It Won’t Make a Counterbid for BEA Systems
InformationWeek, October 15, 2007
The United Kingdom’s Financial Times reported Monday that SAP CEO Henning Kagermann said in an interview SAP would not make a counteroffer for BEA following Oracle’s bid last week to buy the company for $6.7 billion. An SAP spokesman told InformationWeek later Monday: “Yes, this statement is true and confirmed. SAP is not planning a counterbid for BEA.”

Oracle Bids $6.7 Billion for Rival BEA, Whose Officers Say It’s Worth More
New York Times, October 13, 2007
The Oracle Corporation, the business software maker, said on Friday that it had made an unsolicited bid to acquire a rival, BEA Systems, for $6.7 billion, an offer that BEA executives rejected as too low.

Bagging BEA Systems Won’t Be Easy
BusinessWeek Online, October 12, 2007
Oracle has every reason to go after BEA Systems, judging from the reaction on Wall Street to news that Oracle Chief Executive Larry Ellison wants to spend $6.7 billion for the smaller software maker. BEA brings valuable assets, including a huge customer base, a large revenue stream, and a reliable set of products centered on middleware, the software that helps glue together disparate programs.

BEA Rejects $6.7 Billion Oracle Offer, Rival Bids Seen
Reuters, October 12, 2007
Business software maker BEA Systems Inc. rejected a $6.7 billion takeover bid from Oracle Corp. on Friday, throwing the company into play by saying the unsolicited offer was too low. Shares rose 38 percent, above a five-year high, and activist investor Carl Icahn, BEA’s biggest shareholder and a vocal critic of management, said he was pleased by Oracle’s offer but called for higher bids.


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