Oracle Offers to Buy BEA Systems for $6.7 Billion

Oracle Corp., the third-largest software company, made a hostile $6.7 billion bid to buy BEA Systems Inc., sending shares of the business-program maker above the offer price on speculation rival suitors will emerge.

BEA stock jumped as much as 36 percent to $18.56, topping the $17-a-share cash bid. Oracle's proposal is 25 percent more than yesterday's closing price as Chief Executive Officer Larry Ellison pursues growth through acquisitions. BEA rejected the offer, saying it ``significantly'' undervalued the company.

Ellison's interest may draw International Business Machines Corp. or SAP AG into the contest, analysts said. Billionaire shareholder activist Carl Icahn last month started to push BEA to sell, and a deal would bolster Oracle's efforts to compete with IBM in so-called middleware software that connects servers with databases and programs that manage Internet transactions.

``This is too much of a crown jewel to let go without a fight,'' said Ray Wang, a Forrester Research Inc. analyst in Foster City, California. ``There are a number of vendors, including SAP, IBM and H-P, that need BEA more than Oracle does. It's definitely not over.''

Hewlett-Packard may be able to pay $25 a share, RBC Capital Markets analyst Thomas Curlin said. Before today, BEA shares had gained 15 percent in Nasdaq Stock Market trading since Icahn announced his stake in August. Oracle rose 10 cents to $22.56.

SAP spokesman Frank Hartmann, Hewlett-Packard's Emma McCulloch and IBM's James Sciales declined to comment. Oracle's Bob Wynne didn't return a call seeking comment.

Serious Proposal

If he succeeds, Ellison's 35 takeovers will total more than $31 billion in three years. Oracle said it has had ``repeated'' conversations with BEA management over the past several years and delivered the proposal to its rival's board Oct. 9.

The purchase, which would be its biggest since PeopleSoft Inc. in 2005, would give Redwood City, California-based Oracle lucrative maintenance fees. BEA once dominated the market for programs that deliver applications over the Web.

While new software sales slipped and it now trails IBM in that market, BEA still brings in support fees that totaled $714.9 million in the four quarters ended July 31.

``We have made a serious proposal including a substantial premium for BEA,'' Oracle President Charles Phillips said in a statement today. ``We look forward to completing a friendly transaction as soon as possible.''

BEA can't consider any long, ``open-ended'' process because it competes with Oracle and that could damage its business and stock price, according to a letter to Phillips dated yesterday that BEA released with its statement today.

Icahn's Efforts

Icahn, who owns 13.2 percent of BEA and is now the largest shareholder, is pushing the company to seek a buyer whose larger sales organization may spur revenue growth. BEA's software license sales fell 9 percent last quarter.

He told CNBC today that BEA is still ``undervalued'' and that he wants other bidders. BEA would be ``great'' for four or five companies, including Hewlett-Packard and IBM, he said.

Icahn said last month he planned to meet with other investors and may nominate his own board candidates. BEA, which is restating results from 1998 through the first quarter of 2007, can't hold a shareholders meeting until its filings are current.

Forcing It

Oracle, which trails Microsoft Corp. and IBM in software sales, would be paying more than seven times next year's maintenance revenue, valuing BEA at more than what Oracle paid for PeopleSoft and Siebel Systems Inc., said Chris Hickey, an analyst at Atlantic Equities in London.

``It shows they want to get this deal done and want to force BEA's hands,'' he said. UBS AG's Heather Bellini in New York, the top-ranked software analyst by to Institutional Investor, had estimated BEA may fetch as much as $16 a share.

Bloomberg calculated the total value of the deal based on 392 million BEA shares outstanding as of May 2006 because BEA hasn't issued updated figures while it works to restate results.

BEA said this week its restatement will cut profit by $425 million before taxes, exceeding its earlier estimate. The company is correcting results to account for misdated options grants and severance contracts, which hid some costs.

Buying BEA would help Oracle undermine IBM in the middleware market, said Peter Kuper, a Morgan Stanley analyst in Boston.

``With BEA, Oracle eventually could offer a wider variety of products that work together, potentially at a significant discount,'' he said. ``IBM has the most to lose.''

Oracle's offer comes after SAP this week agreed to buy Business Objects SA for 4.8 billion euros ($6.7 billion). SAP, the No. 4 software seller and the leader in business-management programs, gains software that tracks corporate databases.

An Oracle-BEA combination may prompt some BEA customers to switch to Oracle from Walldorf, Germany-based SAP, said Richard Williams at Summit Analytic Partners LLC in Summit, New Jersey. That may draw a rival offer from SAP.

``A week ago I would have said that SAP wouldn't make that big an acquisition,'' he said. ``But since they bought Business Objects, you have to think that maybe they will.''

Source - Bloomberg