UPDATED: As they used to ask in Who Wants To Be A Millionaire – Is that your final answer?
In Oracle’s case, apparently yes. The software giant said in a letter sent to BEA Systems board of directors Thursday that it would not increase its unsolicited acquisition offer of $17 per share and will withdraw the offer if it’s not accepted by this Sunday.
In response to Oracle’s bid, BEA’s Board set $21 per share as the price needed before it would consider selling, a level dismissed as unrealistic by Oracle president Charles Phillips.
In his letter to BEA’s board of directors, Phillips said in part:
“We believe that your counterproposal at $21 per share price is an
impossibly high price for Oracle or any other potential acquirer. At $21
per share, the BEA board is asking for an 80% premium to BEA’s stock price
before the appearance of activist shareholders who are pushing the BEA
Board to sell the company. The $21 per share price is a multiple of
nearly eleven times BEA’s last twelve months reported maintenance
revenues. Nobody would seriously consider paying that kind of multiple
for a software company with shrinking new license sales.
“Furthermore, no other company has come forward to bid for BEA. Our
proposal at $17 per share is the only offer. Apparently no other
companies think that BEA is worth $17 per share, let alone $21 per share.”
He also implied BEA might be setting a high price to remain independent. If that’s the case, Phillips said “then the $21 per share counterproposal is a perfect strategy because there are no bidders above $17 per share.
“We continue to believe that Oracle’s unsolicited proposal to acquire BEA at $17.00 per share significantly undervalues BEA, and is therefore not in the best interests of BEA shareholders,” the board said in a statement. “Over the last several weeks, Oracle has repeatedly asked us for the price at which we would be willing to begin negotiations, and the Board has concluded, after consultation with its financial adviser Goldman Sachs, that it is prepared to authorize negotiations with third parties including Oracle at a price of $21.00 per share.”
The price tag set by BEA’s board matches a price threshold for the deal recently set by analysts at Deutsche Bank. In a research brief issued Oct. 15, analysts Todd Raker, Brian Thackray and Preettinder Panjrath set the price based on potential cost savings as the result of the acquisition.
“We view the [$17 per-share] offer as a starting point of possible negotiations,” the analysts wrote. “Further, we do not rule out the possibility of other bidders emerging.”
The price BEA is now asking would value the buyout at about $8.15 billion. That price tag is not beyond of Oracle’s means. Some market watchers even feel that Oracle is capable of paying much more — which it might have to, if other suitors emerge.
In a recent research note, Brendan Barnicle and Matthew Coss of Pacific Crest Securities estimated that Oracle could go as high as $27 dollars per share without negatively effecting the company’s earnings.
“We conducted four scenario analyses for an Oracle-BEA merger and found that Oracle could bid substantially more than $17 for BEA and still make it accretive or neutral to F2009 EPS,” the pair wrote in a recent research note. “Under all of our scenarios, BEA would likely be slightly dilutive to F2008 EPS, unless Oracle could cut expenses much more rapidly than we currently estimate. F2009 is probably the best comparison, since it is unlikely that Oracle could close the merger within this fiscal year.”
Still, there remains a lack of consensus over whether BEA has other prospective buyers. Deutsche Bank’s Raker refused to rule out companies like Sun Microsystems, Hewlett-Packard, or EMC making a bid for BEA. Meanwhile, Barnicle and Coss were skeptical about whether a second bidder would emerge, since the most natural competitor to Oracle is already tied up.
“It seems unlikely that SAP would pursue BEA, since it will be trying to close its acquisition of Business Objects,” the pair wrote. “We understand that SAP had looked at acquiring BEA.”
Katherine Egbert, an analyst at Jeffries & Company, said she believes that many of the potential second bidders for BEA have already had a look at the company but have declined to pursue an acquisition in earnest.
“We believe that BEA has been passively for sale since spring, and that several large companies have done diligence,” she wrote in a report on BEA earlier this month. “We do not expect a white knight to emerge.”
BEA’s board today said it has directed its legal counsel, Wachtell Lipton Rosen & Katz, to draft a provisional merger agreement and deliver it to any interested parties, including Oracle.
InternetNews.com West Coast Bureau Chief David Needle contributed to this article.
