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Database giant's 25% premium offer "seriously undervalues" troubled middleware vendor.
BEA Systems’ board of directors has rejected an unsolicited $6.7 billion bid from Oracle, claiming that the $17 per share offer “seriously undervalues” the company, despite representing a 25% premium over BEA’s closing price last Thursday.
Oracle anncounced its interest in BEA on Friday when company President Charles Philips revealed that Oracle had conducted repeated discussions with BEA over the last “several years.” He said that “we look forward to completing a friendly transaction as soon as possible.”
Clearly, BEA’s subsequent response suggests that Philips’ desire for a quick and friendly conclusion to its bid may be disappointed. However, it is unlikely that Oracle will simply accpet BEA’s position and move on.
Oracle is known to have had a predatory interest in BEA since 2004, when Oracle chairman and CEO Larry Ellison was obliged to reveal details of his acquisition strategy to an enquiry into Oracle’s pursuit of PeopleSoft. Then, BEA was seen as a potential source of products and technologies suited to shoring up Oracle’s middleware capability.
Oracle has since addressed this issue with its home-grown Fusion technology, but BEA’s AquaLogic products, and its wider Liquid Computing strategy could still provide useful new elements for Fusion. In particular, BEA’s close relationship with VMware has seen it pioneer the delivery of products as virtual appliances – an approach that closely resembles the Big Iron technology with which Oracle had once hoped to provision databases without the need for an operating system.
Some financial analysts believe that Oracle’s move may have more to do with BEA’s rich stream of maintenance revenue, and a perception that BEA might soon be a lost opportunity if SAP’s recent acquisition of Business Objects triggers similar acquisitiveness from IBM or Microsoft.
Although BEA’s sales slipped 9% in the last quarter, support fees have remained strong, and totalled $714 million in the year to July 31. However, the company’s share price has probably been artificially bouyed by the activity of its largest shareholder, the billionaire investor Carl Icahn, who owns 13.2% of BEA. Icahn has been urging BEA’s board to find a buyer with a sales network large enough to boost BEA’s sales.
Oracle would certainly seem to fit Icahn’s vision of BEA’s future, but it remains to be seen whether BEA’s executives share his view. BEA has long argued that customers should only put their trust in middleware vendors that are independent of the applications their products integrate. However, with Oracle claiming to have recently overhauled BEA’s middleware sales with aggressively priced Fusion products and a 25% share price premium already on the table, BEA’s purity of purpose may soon give way to old-fashioned fiscal pragmatism
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