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Why Oracle's Tops in Takeovers

It appears it's now just a matter of when -- not if -- Oracle will complete its $6.7 billion takeover of embattled middleware software provider BEA Systems.

Despite the drama of hastily exchanged letters and rebuttals on Friday between the companies' executives, most financial and software industry analysts expect the deal to become official sooner, rather than later.

That's because Oracle -- thanks to a couple of painful, but educational, missteps along the way -- has become an expert at acquiring companies, whether they like it or not.

For now, BEA's management team and most of its shareholders believe -- or at least want Oracle to believe -- the company is still very much in play. However, Oracle's $17-a-share offer, which represents a solid 25 percent premium over BEA's closing price of $13.62 a share before the takeover bid became public, remains the only offer on the table.

SAP, which is surely loath to let Oracle snap up yet another prominent software company, is out. IBM and HP remain mum. EMC or any other long-shot candidate has yet to materialize.

This is no accident and reflects just how serious and seasoned Oracle has become in its quest to unseat SAP as the world's largest vendor of business applications in the enterprise.

Oracle had been pursuing BEA, on and off, for the better part of two years. That CEO Larry Ellison and President Charles Phillips made their intentions known less than a week after SAP said it would pay $6.8 billion to acquire Business Objects comes as even less of a surprise.

Assuming SAP would be likely to pass on a protracted, expensive bidding war so soon after making a massive purchase of its own, Oracle felt confident it could make an aggressive move without SAP's interference.

But the timing of Oracle's move was just one of several new tactics Ellison and company employed this time.

Unlike events leading to the bitter, protracted and largely unsatisfactory resolution to its hostile takeover of PeopleSoft in late 2004, Oracle approached BEA with what most consider a very generous offer. That's a marked difference from the low-balling it tried to do some three years ago in the PeopleSoft coup.

Also, by timing its move on BEA shortly after SAP's uncharacteristically bold purchase of Business Objects, Oracle demonstrated a further willingness to learn from the past. This time, it dodged what might have become another lengthy and expensive bidding war with its German rival, a process Oracle had already endured years earlier, when it sparred over retail software specialist Retek.

"Oracle has learned a great lesson from the PeopleSoft deal and other deals," Yefim Natis, a vice president and distinguished analyst at Gartner, said in an interview with InternetNews.com. "Nothing like that is happening this time. Oracle now has the vision and aggressive attitude it needs to execute this kind of deal."

Oracle learned further lessons from those turbulent acquisitions. In the PeopleSoft takeover, Oracle initially offered $16 a share to acquire what had been its most bitter rival for the better part of a decade. Two weeks later, it attempted to thwart resistance to the deal by upping the offer to $19 a share. Then, $24 a share.

Eighteen months and a lot of hard feelings later, Oracle finally wrapped up the deal at $26.50 a share, shelling out more than $10.3 billion.

That lengthy, contentious process not only cost Oracle more money upfront, but also cost it dearly in the following months and years. Industry watchers said that in the wake of the sale to Oracle, many of PeopleSoft's enterprise customers stopped doing business with the company, while its key sales reps and managers were giving less-than-stellar efforts on their way out the door.

In the Retek deal, Oracle initially countered SAP's $496 million offer with its own $525 million bid, or $9 per share. SAP went to $11 a share before Oracle prevailed at $11.25 a share.

"With PeopleSoft, Oracle learned that you don't kill the revenue stream to make the deal," Ian Finley, an analyst at AMR Research, said in an interview with InternetNews.com. "You could also say they learned that you don't get into a bidding war with SAP if you can avoid it."

"Today, Oracle is a much smarter acquirer of these large competitive products," he said. "Also, Oracle has become much better at maintaining multiple products that aren't necessarily compatible and merging them over time. You couldn't say the same about the PeopleSoft merger."

For now, BEA shares are still trading well above Oracle's $17-a-share offer. On Monday, the stock closed off 38 cents, or 2 percent, to $18.44 a share. BEA executives continue to insist the company is "worth substantially more to Oracle, to others and, importantly, to BEA shareholders."

Not so, says one industry watcher.

"Oracle came in with a higher-than-normal bid to give BEA a fair shake," Peter Goldmacher, an analyst at Cowen & Co., said in an interview with InternetNews.com. "I'm shocked that BEA is behaving like this is an undervalued asset. This was a $10 stock three months ago. They should consider themselves lucky to get $17 a share."