Oracle’s $6.7B Offer May Trigger Bidding War

Oracle announced it wants to acquire BEA Systems, a provider of Web-based business productivity and integration software, for US$6.7 billion, or $17 per share in cash. BEA has already rejected the offer, according to news accounts, saying that Oracle’s bid seriously undervalues the company’s overall worth.

The market apparently shares that view, despite BEA’s lackluster sales and declining profits. After the news was announced, BEA stock prices jumped almost 40 percent to $18.56, exceeding the offer bid.

Still, the offer implied a hefty premium given BEA’s lackluster performance recently, said Brad Adams, vice president at Boston Corporate Finance. “Seventeen dollars is a 25 percent premium over what BEA stock closed at on Thursday and it implies a hefty valuation,” he told CRM Buyer.

Oracle president Chuck Phillips noted as much when announcing the offer. “We have made a serious proposal including a substantial premium for BEA,” he stated. “We look forward to completing a friendly transaction as soon as possible.”

Going Public

If this takeover is successful, Oracle’s acquisition body count will have reached into the mid 30s. What is unusual about this particular deal is that Oracle announced its intentions before the deal was closed.

It may regret that, Adams said, as the announcement is sure to attract other suitors for BEA. HP, for instance, is considered to be a likely candidate, as is IBM and SAP.

However, it may be that Oracle had an ulterior motive by announcing its plans. “I think it wanted to take the wind out of SAP’s sails, after its announcement this week that it would acquire Business Objects,” Adams said. “It is very much in your face with SAP — which is typical of Larry (Ellison)’s style.”

This week, SAP announced it would acquire Business Objects for about $6.78 billion. A French provider of business intelligence software, it was one of the few assets on the market able to go head to head with Hyperion, which had been acquired by Oracle for $3.3 billion. It was SAP’s largest acquisition to date as the firm typically adopts a build versus buy strategy for new functionality.

However, as the competition between the two vendors intensifies it may be that that is changing. Another viable contender for BEA, for instance, is in fact SAP, which could also benefit from BEA’s technology.

Whither Fusion

Leaving aside the politics, personalities and market maneuvering, BEA’s technology would fit nicely in Oracle’s product line up and database platform. “Oracle has been making huge forays into SOA (service-oriented architecture)-based technology,” Adams said. “Also, Oracle has acquired Fuego, a business process management vendor, which gave Oracle a BPM application that is heavily oriented in the SOA framework. That fits perfectly with BEA’s strategy.”

The larger question is how BEA will fit in with Oracle’s Fusion middleware strategy of bringing together its multiple acquisition. If the acquisition were to go through, it would no doubt accelerate Fusion’s development, Roger Kay, president of Endpoint Technologies Associates, told CRM Buyer.

“Oracle wouldn’t be spending that kind of money if it didn’t think it could bring products to market faster and hopefully cheaper,” he said.

Also, Fusion is a key piece of Oracle’s larger strategy and any acquisition is vetted for how it would fit in, he said.

Scott Salomon, president of Three Dimensional Resource Planning, a national Oracle partner, also agreed that the BEA acquisition would facilitate Fusion.

“We are integrating BEA’s technology into Oracle right now anyway,” he told CRM Buyer. “So, if this deal goes through, instead of us customizing the integration for customers, it will be repackaged to plug right into the Fusion middleware.”