Oracle calls BEA’s price ‘impossibly high’

Oracle has rejected BEA Systems’ proposed purchase price of US$21 per share, calling it “impossibly high” for Oracle or any other company to pay.

In a letter to BEA’s board dated Oct. 25, Oracle again urged the company to accept its offer of $17 per share, an amount that Oracle said it was “unwilling to increase.”

“The $21 per share price is a multiple of nearly eleven times BEA’s last twelve months’ reported maintenance revenues,” wrote Oracle President Charles Phillips. “Nobody would seriously consider paying that kind of multiple for a software company with shrinking new license sales.” He noted that Oracle was the only company making an offer for BEA. “Apparently no other companies think that BEA is worth $17 per share, let alone $21 per share,” Philips wrote.

Oracle again urged BEA to put its offer to a shareholder vote. Oracle’s bid of $17 per share values BEA at about $6.7 billion. A price of $21 per share would value it at $8.3 billion.

Oracle said it had an obligation to its own shareholders to “exercise price discipline when evaluating acquisition opportunities.” It reminded BEA of its deadline of Sunday evening to accept the offer, after which it will “move on” and consider other acquisitions.

Oracle made its surprise bid for BEA on Oct. 12, hoping to strengthen its line of middleware products and grow its customer base. BEA, which had been under pressure from investor Carl Icahn to sell, quickly rejected the offer as too low, and on Thursday came back with its suggested higher price. Oracle’s offer “significantly undervalues BEA” and is not in the best interests of BEA’s shareholders, it said on Thursday.

BEA officials weren’t available for comment on Oracle’s latest letter.

If the deal doesn’t happen, BEA faces an uncertain future. SAP, for example, said it will not try to purchase BEA because there is too much overlap in the companies’ technology, CEO Henning Kagermann has reportedly said.

At BEA rival JBoss, a middleware vendor owned by Red Hat, general manager Sacha Labourey predicted that BEA will relent to pressure from investors and sell to Oracle.

BEA’s product lines include AquaLogic, software to help develop and manage service-oriented architecture components, and other products to integrate, secure and govern the services deployed in an SOA. BEA also makes the WebLogic platform, a set of products including a portal that supports Web 2.0 technologies with rich user interfaces and mashups.

An Oracle-BEA deal would probably benefit BEA customers, and would be great for Oracle, giving the vendor a huge advantage over SAP in SOA-based applications, Shimmin says.

But if you don’t hear anything within the next couple weeks, this deal might not happen at all, says James Kobielus, principal analyst for data management at Current Analysis.

“If anything’s going to happen it’s going to have to happen in the next week or two,” Kobielus says. “If there’s not a counterbid or a new bid from Oracle in the next couple of weeks, don’t expect anything after that. It will either completely peter out in the next couple weeks or it’ll just go on and on.”

Many Oracle customers also use products from BEA, which due to WebLogic is the “worldwide leader in Java-based application servers,” according to Ari Kaplan, president of a U.S. Oracle users group.

Oracle has done a good job continuing to support products from companies it has acquired, but the effect of any acquisition on customers is always an unknown, he says.

“Oracle has done cooperative takeovers. Oracle has done hostile takeovers, PeopleSoft is a good example,” Kaplan says. “In the end what we’re concerned about is on the customer side. Is the technology a value to customers. Is any of the technology going to be thrown out, or [no longer supported].”

Oracle hasn’t let its ambition to purchase BEA prevent it from making other acquisitions. Oracle announced Wednesday that it has agreed to buy Interlace Systems, which makes strategic operational planning software. Interlace would be Oracle’s 10th acquisition of 2007.

An Oracle/BEA deal would practically be a match made in heaven, argues David O’Connell, a senior analyst at Nucleus Research. BEA has the technology to integrate a lot of the applications Oracle sells, he says. Oracle’s offer of $6.7 billion seems to be a fair one, he says.

“If Oracle uses BEA well, it can have a more seamlessly integrated product offering than its rivals and that would be a significant competitive advantage,” O’Connell says. And on the other side, “there’s lots of room for BEA to run and play and grow [under Oracle].”

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