Update: BEA counters Oracle, wants $21 a share

Says Oracle's offer of $17 per share isn't in shareholders' best interest

BEA Systems Inc.'s board of directors countered Oracle Corp.'s bid for acquiring the company, proposing a price of $21 per share, $4 more than Oracle's initial offer.

"We continue to believe that Oracle's unsolicited proposal to acquire BEA at $17 per share significantly undervalues BEA, and is therefore not in the best interests of BEA shareholders," the company said in a statement today.

Oracle on Tuesday set a deadline of Sunday for BEA to accept its "generous" original bid, which totals about $6.7 billion. The company also indicated it had no interest in a protracted merger battle.

But BEA declared that the company's existing assets and future business prospects dictate a significantly higher sale price. The company said it has customers for its array of enterprise software among 75% of the Fortune Global 500, along with $1 billion in cash reserves and no debt.

At $21 per share, BEA would cost Oracle about $8.3 billion. BEA's stock was trading at $17.60 a share at midday today.

BEA said it arrived at the $21-per-share figure after talking to its financial adviser, Goldman Sachs. The company said it has authorized its attorneys to give a draft merger agreement to third parties willing to meet the price. The agreement would "provide for an appropriately high degree of certainty of closing," BEA said.

An Oracle spokeswoman declined to comment on BEA's statement.

A successful purchase of BEA would significantly increase Oracle's standing in the middleware space. While some BEA assets would help round out Oracle's offerings, the companies overlap in key categories such as Web servers and enterprise service bus products.

David O'Connell, a senior analyst with Nucleus Research in Wellesley, Mass., said there is a major upside for Oracle in buying BEA, even at a higher price. "Is [BEA] worth Oracle paying a lot for? Yeah," O'Connell said. Oracle would gain BEA's customer base and technologies, a collective boon for Oracle's Fusion middleware and SOA (service-oriented architecture) offerings, the analyst noted. Some have questioned the eventual fate of certain BEA technologies after a merger, but O'Connell said he would not expect major disruptions for existing customers. "My sense is they want to use Fusion to let people continue using those applications," he said. "That's what SOA and integration is all about."

Copyright © 2007 IDG Communications, Inc.

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