Oracle Sweet-Talks BEA Into $8.5B Acquisition Deal

Three months after BEA Systems rejected its first unsolicited offer of US$6.7 billion, Oracle announced that it will be acquiring the middleware and business process management vendor after all — for $8.5 billion, or $19.38 per share. That’s a 14 percent premium over its first bid and a 24 percent premium over BEA’s closing share price of $15.58.

BEA’s board of directors unanimously accepted the $8.5 billion proffer, which is still subject to stockholder and regulatory approval.

Split Down the Middle

The new acquisition price was “neatly negotiated,” said Murray Beach, managing director of TM Capital (formerly Boston Corporate Finance).

“The two split their differences in their valuations of BEA down the middle,” Beach told CRM Buyer.

Oracle’s initial offer of $17 per share was a 25 percent premium over BEA’s closing price on the prior day — a hefty valuation in Oracle’s eyes. Indeed, in mid-day trading its stock was selling at $18.55 — 4.25 percent below the proposed takeover price, Fred Ruffy, an analyst with the investor education firm Optionetics, told CRM Buyer.

BEA’s earlier stance was that it could do better — possibly with rival SAP, which has been attempting to match Oracle’s growth-by-acquisition strategy through such deals as its $6.78 billion purchase of Business Objects.

Icahn’s Role

Despite the wrangling between Oracle and BEA, it was fairly clear from the start that Oracle wasn’t interested in entering a prolonged period of hostile negotiations, as it did with PeopleSoft several years ago.

The thumbs up from billionaire investor Carl Icahn, who owns 13 percent of BEA, helps. “This transaction is an excellent example of the great results that can be achieved for all constituencies when the shareholder activist is able to work cooperatively with management,” he said.

Since the deal is still subject to BEA stockholder and regulatory approvals, some uncertainty still remains, Ruffy said.

“However, with BEA Systems activist shareholder Carl Icahn on board, the latest deal has a much higher probability of going through,” he said.

Icahn resisted the initial $17 per share offer from Oracle, Ruffy noted, saying that the price was too low. “This time, Icahn is in support of the deal, and the odds of completion seem a lot better.”

A Good Fit

Despite the back-and-forth between the two companies — some of which played out in public, “it has been obvious that Oracle was the best buyer for BEA all along,” Beach said. The market liked the news; BEA shares rose almost 3 percent in morning trading.

Once BEA enters Oracle’s fold, customers and shareholders can expect to see a value-add to the company’s Fusion strategy.

“Oracle has put together a fantastic group of technology through its acquisitions of Hyperion, Siebel, PeopleSoft and other vendors,” Beach said. “BEA has the best middleware and BPM software of any of the large companies out there.”

Oracle, he continued, “will be in an excellent best-of-breed position in short order, once the BEA acquisition is complete.”

The merger will also help boost Oracle’s market share through expansion into key regions like China, as well as in other business segments, such as telecommunications, Ruffy said.

BEA users, for their part, are unlikely to feel slighted, Ruffy observed. “Oracle already works with many BEA Systems customers and plans to continue supporting existing products.”

Industry Shake-Up

As for the rest of the market, the implications of the deal are clear: SAP and Microsoft will be feeling the competitive heat as Oracle accelerates BEA’s Java-based product line.

Also, with BEA now spoken for, the few similar vendors left standing as independents can expect their days to be numbered, Beach noted.

Tibco, for instance, is sure to attract a suitor — whether it wants to or not.