BEA Hits on 17, Hopes for 21

After two weeks of rebuffing offers from Oracle to buy it for US$17 pershare, BEA Systems said Thursday it will consider a takeover bid thatvalues it at $21 per share.

The move came two days after Oracle tried to turn up the heat on BEA’s board by setting a deadline of this Sunday for it to accept its $17 per share bid.

The company’s board of directors, which has repeatedly said Oracle’s offer undervalues the company, said it would listen to offers from Oracle or “other interested parties” if they came in at that price.

Consulting With Advisers

Oracle’s offer is worth around $6.7 billion; at $21 per share, BEA would sell for closer to $8.2 billion.

“We will continue to vigorously oppose a sale to Oracle at $17 per share,” the board said in a statement. “Over the last several weeks, Oracle has repeatedly asked us for the price at which we would be willing to begin negotiations, and the board has concluded, after consultation with its financial adviser Goldman Sachs, that it is prepared to authorize negotiations with third parties including Oracle at a price of $21.”

BEA has authorized its lawyers to provide a draft merger agreement to a third party willing to meet that price, it said. BEA suggested the framework would enable a deal to be consummated quickly.

The move appears to put the ball squarely back in Oracle’s court. As it has made its offers, it has repeatedly said it would be willing to talk face-to-face with BEA about reaching a deal.

Investors appeared skeptical BEA would get the price it’s seeking. The shares were up only slightly in afternoon trading Thursday to $17.65.

Cash and Carry

BEA’s argument for the higher valuation includes the fact that it has more than $1 billion in cash on hand and a massive customer base for its middleware products, which include the AquaLogic, WebLogic and Tuxedo brands. The company also cited “compelling international growth opportunities in China and elsewhere, and a leadership position in theongoing service-oriented architecture (SOA) evolution.”

Even at $21 per share, BEA believes Oracle — or others — could make the deal accretive to earnings after a short time.

Oracle did not immediately respond to the new development. It is unlikely fazed by the ultimatum, however, given its recent history of acquiring large and small companies in friendly and contentious deals over the past five years. In fact, after making an offer for PeopleSoft — one CEO Larry Ellison called the “best and final offer” at the time — Oracle later raised the price, a move that helped land the deal.

If it wanted to send Oracle on its way, BEA may have set an even higher price tag, Sanford C. Bernstein analyst Charles Di Bona told CRM Buyer. Still, while it may offer a shortcut to other bidders who may be interested to get a deal done, setting the price as high as it is may deter any other would-be buyers.

“No one came over the top of Oracle’s first offer, so it seems unlikely this higher price is going to attract any bidders,” DiBona added. BEA has lost its dominant position in the middleware space to IBM, posting an 11 percent drop in new license revenue in its secondquarter, he noted. “Oracle can use BEA to challenge IBM, and the maintenance revenue would be a sizable gain, but the value may not be there for anyone else.”

Dragging It Out

Neither side benefits if the drama over a potential deal drags on for a long time, said Ovum Senior Analyst Laurent Lachal.

“This situation creates uncertainty for customers of both companies, even though Oracle is clearly not aiming to alienate BEA customers by phasing out the customers products,” Lachal told CRM Buyer.

By hanging out a specific price tag, meanwhile, BEA’s board can be seen addressing the desires of key shareholders — most notably billionaire Carl Icahn, who now owns more than 13 percent of the company’s outstanding shares. BEA has long been seen as a takeover candidate because vendors with a wider range of product offerings could leverage its middleware lineup more effectively, the analyst added.

“BEA’s current strategy focuses on how well it can work with other software solutions,” Lachal said, “and a company that offers those products could unlock more value.”

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