Oracle makes $6.7B offer for BEA Systems

Company wants to beef up its middleware suite

Oracle Corp. announced today that it has offered to buy middleware vendor BEA Systems Inc. for $6.66 billion, or $17 per share, in cash.

Oracle said it had written to BEA's board of directors on Tuesday to make the offer, which represents a premium of 25% over BEA's closing share price yesterday. The Wall Street Journal valued the offer at $6.66 billion.

BEA was a pioneer in the market for Java application server software used to deploy business applications, competing with products like IBM's WebSphere. It has been rumored to be an acquisition target on numerous occasions but has managed to retain its independence.

"This proposal is the culmination of repeated conversations with BEA's management over the last several years," Oracle President Charles Phillips said in a statement. "We look forward to completing a friendly transaction as soon as possible."

However, BEA executives were not quoted in the statement, and there was no indication early today as to whether the company is open to being acquired.

Oracle said the acquisition would help it beef up its own middleware suite, an important area for the company that links several families of business applications it has acquired.

The company said it would protect the investments of BEA customers if the deal were to go ahead.

"Our continuing support commitment has been amply demonstrated with all of our previous acquisitions, including PeopleSoft and Siebel. BEA will be no different," Phillips said.

Oracle's Fusion middleware already has many of the products BEA sells, including an application server, portal server and development tools, which means the acquisition would create considerable overlap.

Stephen O'Grady, principal analyst at RedMonk LLC, said Oracle's primary motive is likely the expansion and solidification of its presence in the middleware market.

"For all that BEA is not at the heights that it once was, it still owns solid accounts across global enterprises," O'Grady said. "And while Oracle obviously isn't lacking for presence in those accounts, BEA's middleware is often more highly regarded."

BEA was an early leader in applications servers but saw its lead whittled down gradually by IBM and later by Oracle, which built up a strong middleware business itself. Oracle CEO Larry Ellison often liked to predict BEA's demise, but the company has managed to cling onto a respectable market share by developing new service-oriented architecture and business process management technologies.

It has been under pressure of late, however, notably from billionaire investor Carl Icahn, one of BEA's large shareholders. Icahn said last month that he would press for the sale of BEA, believing the business would find it hard to stay afloat as an independent company.

In August, BEA reported total revenue for its second quarter of $365 million, up 7% from a year earlier, although revenue from new license sales, an important measure of growth for a software company, declined by 9% to $123 million. The company didn't report full figures for the quarter because of an ongoing investigation into its stock options grants.

BEA's shares on Nasdaq closed at $13.62 on Thursday, down from a 52-week high of $16.77. In premarket trading this morning, the shares had jumped 31% on the news of Oracle's offer, to $17.84. Oracle shares were fluctuating around their closing price Thursday of $22.46.

The deal would mark yet another big acquisition for Oracle, which is on an unprecedented buying spree that has netted it more than 30 software companies in the past three years. They include applications vendors PeopleSoft, Siebel and J.D. Edwards; performance management vendor Hyperion; and database vendors TimesTen and Innobase.

Ellison has said the acquisitions are designed to win the company new customers and increase its economies of scale so that it can invest heavily to become a leader in the applications market.

The deals have catapulted Oracle into second place behind SAP AG in the business applications market, although analysts question how Oracle can manage so many different product lines and integrate them under one roof.

Oracle indicated earlier this year that it would ease off the blockbuster acquisitions while it integrated the other companies it has bought. However, Ellison has always seemed to covet BEA, and he may feel that the unrest caused by Icahn has given him a chance to act.

Copyright © 2007 IDG Communications, Inc.

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