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Oracle Digs Deep to Snare BEA

It didn't come easy and it didn't come cheap but Oracle on Wednesday finally got its hands on BEA Systems after agreeing to pay more than $8.5 billion for one of the last significant independent middleware vendors still standing.

Oracle, which had its initial "friendly" takeover bid of $6.7 billion, or $17 a share, rebuffed in October, agreed to pony up $19.375 a share in cash to close the deal. The 14 percent premium values the acquisition at roughly $8.5 billion, or $7.2 billion net of BEA's cash on hand of $1.3 billion.

BEA shares stormed up $2.88 a share, or 18 percent, to close at $18.46 after the deal was announced while Oracle shares moved up 61 cents, or 3 percent, to finish at $21.92.

The acquisition instantly makes Oracle—along with IBM—a premier provider of middleware software used for service-oriented architectures (SOA)  in the enterprise.

"I think the first most important thing to Oracle is the opportunity to make a move on the high end of the market, and go more head-to-head with IBM there," Mike Gilpin, an analyst at Forrester Research, told InternetNews.com. "And that's not just high-end transaction processing, it's also events, virtualization, scale-out and other area where BEA has been innovating ahead of the market.

In November, Oracle CEO Larry Ellison told analysts that if Oracle were to make another offer for BEA, it would for less than the $17 a share it originally offered.

Apparently, he and the rest of Oracle's board of directors had a change of heart.

"I think they needed to get the deal done in time for the anniversary of the [Hyperion] deal and it was worth $2 to $4 [more per share] to them," Cowen & Co.'s Peter Goldmacher wrote in an e-mail to InternetNews.com. "I am disappointed but it's good for the stock and [paying an additional] $7 billion is mouse nuts relative to the hit the stock may have taken had they had a bad top-line comparison."

Another factor contributing to BEA's eventual acceptance of Oracle's sweetened offer was the green light given by activist investor Carl Icahn, the company's largest shareholder, who initially chided BEA executives for playing hard to get. Icahn originally called on BEA's board to sell the company, arguing that it was worth more to potential buyers than as a stand-alone company.

With Icahn now on board, BEA executives managed to extract a decent premium above what many analysts considered a generous first offer from Oracle.

"Over the past several months, our Board of Directors, with the assistance of independent financial and legal advisors, has reviewed various ways to maximize stockholder value, including engaging in discussions with third parties about a possible sale of the company," BEA CEO Alfred Chuang said in a release. "This transaction is the culmination of that diligent and thoughtful process, and we believe it is in the best interests of our shareholders."

Yefim Natis, a vice president and distinguished analyst at Gartner, said the merger makes sense for both companies.

"It's not a surprise," he said. "What's different between now and when Oracle first announced its offer is that nobody stepped up to compete. Oracle is buying BEA with the knowledge that it's not buying it away from another vendor. Oracle's motivation is not technology, though BEA has excellent technology. Now Oracle really becomes equal to IBM in the high-end of the market and it's also very strong at the lower end with developers where its platform is already widely used."

Oracle CFO Safra Catz said the deal is expected to add between 1 cent and 2 cents a share on a non-GAAP basis in the first full year after closing. The deal is expected to close by mid-year.

Also Wednesday, Oracle announced it had acquired Captovation, a leading provider of document capture software that streamlines the process of capturing mission-critical content for access within business applications and processes. Financial terms of the deal were not disclosed.