Oracle and BEA: What happens next?

Hostile takeover may be coming. Or nothing at all.

BEA Systems has rejected Oracle’s $6.7 billion purchase offer. What happens next is anyone’s guess.

Despite consistent pressure from acquisition-happy Oracle, leadership at BEA Systems is standing firm against the software giant. After Oracle threatened to pull its $6.7 billion offer for BEA off the table, BEA didn’t cave: It demanded more money.

What happens next may be anyone’s guess.

See also: Oracle's bid for BEA: the timeline

“There’s information the public knows, and there’s information really known” only by each company’s board of directors, notes Ari Kaplan, president of the Independent Oracle Users Group (IOUG).

Oracle offered to purchase BEA for $17 per share on Oct. 9 and was promptly rebuffed. In the pursuer’s next move, Oracle President Charles Phillips sent a letter to BEA’s board demanding that BEA let shareholders vote on an acquisition agreement. In response, BEA on Oct. 25 proposed a purchase amount of $21 per share, inviting “third parties including Oracle” to bid at that price. Oracle has already rejected the $21 price as “impossibly high” and said it refuses to budge from the $17 per share offer.

That could be just the beginning of a long, drawn-out process, even though both companies have said they want to avoid a lengthy ordeal.

Instead of rejecting outright any attempt at an acquisition, BEA clearly is open to being acquired if it gets the right price.

“BEA’s Board has not indicated that it would be opposed to a transaction that appropriately reflects BEA’s value, reached through a reasonable process,” BEA’s William Klein, vice president of business planning and development, wrote in an Oct. 23 letter to Oracle President Charles Phillips, hours after Oracle threatened to take its offer out of play. “If Oracle is genuinely interested in acquiring BEA, you are fully capable of proposing a reasonable price to the BEA Board or taking any offer you wish directly to BEA shareholders.”

If BEA has a poison-pill provision in its bylaws, which would prevent an acquisition without agreement from the board of directors, says Brad Shimmin, principal analyst for application infrastructure at Current Analysis. If that is the case, Oracle could go to court “to have [the poison pill] removed and swoop in and do a hostile takeover,” Shimmin says.

“I don’t think [Oracle is] threatening to pull the bid, so much as they are stating that they believe it’s a fair bid and they hope BEA reconsiders,” Shimmin said before BEA’s $21-per-share proposal. “I don’t think it’s really a question of showmanship for the money. I think if BEA does not reconsider . . . then Oracle very likely could start a legal process to make the acquisition go through.”

Shimmin is not expecting a bidding war between Oracle and other potential buyers, “because other vendors who were possibilities have all denied any interest in [buying BEA],” he says.

SAP, for example, said it will not try to purchase BEA because there is too much overlap in the companies’ technology, CEO Henning Kagermann reportedly has said.

At BEA rival JBoss, a middleware vendor owned by Red Hat, general manager Sacha Labourey predicted that BEA will relent to pressure from investors and sell to Oracle.

BEA’s product lines include AquaLogic, software to help develop and manage service-oriented architecture (SOA) components, and other products to integrate, secure and govern the services deployed in an SOA. BEA also makes the WebLogic platform, a set of products including an application server and portal that supports Web 2.0 technologies with rich user interfaces and mashups.

An Oracle-BEA deal probably would benefit BEA customers, and would be great for Oracle, giving the vendor a huge advantage over SAP in SOA-based applications, Shimmin says.

If you don’t hear anything within the next couple of weeks, however, this deal might not happen at all, says James Kobielus, principal analyst for data management at Current Analysis.

“If anything’s going to happen, it’s going to have to happen in the next week or two,” Kobielus says. “If there’s not a counterbid or a new bid from Oracle in the next couple of weeks, don’t expect anything after that. It will either completely peter out in the next couple weeks or it’ll just go on and on.”

Many Oracle customers also use products from BEA, which, because of WebLogic, is the “worldwide leader in Java-based application servers,” according to the IOUG's Kaplan.

Oracle has done a good job continuing to support products from companies it has acquired, but the effect of any acquisition on customers is always an unknown, he says.

“Oracle has done cooperative takeovers. Oracle has done hostile takeovers, PeopleSoft  is a good example,” Kaplan says. “In the end what we’re concerned about is on the customer side. Is the technology a value to customers. Is any of the technology going to be thrown out, or [no longer supported].”

Oracle hasn’t let its ambition to purchase BEA prevent it from making other acquisitions. Oracle announced Wednesday that it has agreed to buy Interlace Systems, which makes strategic operational planning software. Interlace would be Oracle’s 10th acquisition of 2007.

An Oracle-BEA deal would be practically a match made in heaven, argues David O’Connell, a senior analyst at Nucleus Research. BEA has the technology to integrate a lot of the applications Oracle sells, he says. Oracle’s offer of $6.7 billion seems to be a fair one, he adds.

“If Oracle uses BEA well, it can have a more seamlessly integrated product offering than its rivals, and that would be a significant competitive advantage,” O’Connell says. And on the other side, “there’s lots of room for BEA to run and play and grow [under Oracle].”

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