Oracle May Acquire Rival BEA Without Raising $6.7 Billion Offer

Oct. 29 (Bloomberg) -- Oracle Corp., the world's third- largest software maker, may land BEA Systems Inc. without raising the $6.7 billion hostile bid rejected by its California rival.

BEA's board says it wants more than $8 billion, and let Oracle's offer expire yesterday at 8 p.m. New York time. Because no other suitors have emerged, Oracle may renew its bid or offer a lower price than its $17 a share proposal, said Peter Goldmacher, a Cowen & Co. analyst in San Francisco.

"BEA is badly miscalculating Oracle's desire,'' said Goldmacher, who rates Oracle shares "outperform'' and doesn't own them. "Oracle doesn't need BEA. At some point, Oracle will buy these guys, but it's completely at Oracle's discretion.''

Oracle said yesterday after the offer expired it is now up to shareholders to take "appropriate action'' if they disagree with the BEA board's decision. Billionaire investor Carl Icahn, BEA's largest shareholder, stepped up demands on the company last week, insisting it put Oracle's bid to a shareholder vote if there isn't a higher offer.

"There's so much pressure on BEA from shareholders that they will have to ultimately succumb to an acquisition at $17,'' said Chris Hickey, an analyst for London-based Atlantic Equities. "Time is on Oracle's side.''

A merger with a larger company may help BEA grow faster. BEA's sales of new software licenses, its main indicator of future growth, fell 11 percent in the six months ended July 31. BEA sells so-called middleware programs that help different computer applications share information.

Redwood City, California-based Oracle disclosed its bid Oct. 12. The offer was 25 percent more than BEA's closing price the previous day. Last week, San Jose, California-based BEA said its stock was worth $21, calling Oracle's bid ``unacceptable.''

BEA fell $1.03 to $16.50 on Oct. 26 in Nasdaq Stock Market trading. Oracle added 35 cents to $21.35.

No Bidders Likely

BEA's board repeatedly refused to meet Oracle officials to discuss the offer, and shareholders shouldn't assume Oracle will make another offer later, Oracle said in a statement last night.

"BEA's business might materially weaken, the stock market can fall further from its recent record highs or Oracle may have committed its capital elsewhere,'' Oracle said. "If the BEA shareholders are unhappy with the behavior of the BEA board, it is up to those shareholders, not Oracle, to take the appropriate action.''

Oracle Chief Executive Officer Larry Ellison sought to buy BEA to get its software-maintenance revenue, Goldmacher said. Oracle would cut costs by firing most of BEA's employees, he said.

Oracle spokesman Bob Wynne and BEA's Kevin Hayden didn't return calls seeking comment.

Business Objects

Ellison, whose company trails Microsoft Corp. and International Business Machines Corp. in total software sales, said last month he wants to ``beat IBM'' in middleware.

No other company will match or exceed Oracle's offer because no one else stands to gain as much from the purchase, said Charles Di Bona, an analyst at Sanford C. Bernstein in New York. He rates BEA ``underperform'' and Oracle "market perform'' and owns neither stock.

BEA's counteroffer of $21 a share would make a deal more expensive than Oracle rival SAP AG's purchase of Business Objects SA, based on the price paid divided by revenue. That wouldn't make sense because Paris-based Business Objects is growing faster than BEA, said Brad Manuilow, an analyst at American Technology Research in San Francisco.

A bid without the BEA board's support wouldn't succeed because of takeover defenses including a so-called "poison pill'', Goldmacher said.

Tailspin

While BEA once dominated its market, the company lost that lead to Armonk, New York-based IBM. BEA plans to restate results to cut profit by $425 million, before taxes, for fiscal 1998 through the first quarter of fiscal 2007 to account for misdated stock-option grants and severance contracts.

"BEA is in a tailspin,'' Goldmacher said. "At $17, it would be a graceful exit for BEA, which has been in rough shape for a while.''

A bright spot is BEA's maintenance fees, which rose 21 percent to $714.9 million in the past four quarters. Such fees are Oracle's "highest-margin business unit,'' the company said in a filing this month.

While lucrative, that revenue isn't central to Oracle's efforts to take customers from IBM and Walldorf, Germany-based SAP. That means Oracle may just walk away from the BEA deal, analysts said.

"The only person who really knows if this gets done is Larry Ellison,'' said Manuilow, who rates Oracle "buy.'' "He's the one who ultimately pulls the trigger.''

Author: Ville Heiskanen @ Bloomberg.com

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