BEA realistic: The cost of an Oracle takeover

It’s clear by now that Oracle’s plans to buy BEA are still very much alive.

On Friday, Oracle CEO Larry Ellison asserted that the BEA board should allow company shareholders to decide whether or not to accept Oracle’s bid.

“The BEA board can go ahead and recommend against the vote. But it should be the shareholders that decide the fate of the company,” the Oracle CEO said at his company’s annual stockholder meeting.

Essentially he was singing the same tune as BEA’s largest investor-shareholder Carl Icahn, who a few days earlier had issued a statement charging the BEA board with trying to “derail” the sale.

Icahn had dubbed the board’s public declaration of a $21 per share “take it or leave it” price as a “management entrenchment tactic, not a negotiating technique.”

He also filed a lawsuit in Delaware demanding the holding of the BEA annual shareholder meeting “before any scorched earth transactions (such as stock issuances, asset sales, acquisitions or similar occurrences) take place at BEA, other than transactions that are approved by shareholders.”

Icahn’s concern for shareholder interests is perfectly logical when you consider he’s the chief among them – owning more than 58 million shares and equivalents.

And his indignation at the BEA board is understandable when you consider that he holds the board responsible for obstructing a sale that could add additional billions to his already humongous fortune.

There’s little doubt what the outcome will be if the Board leaves the decision to shareholders or conducts an auction sale process (as Icahn has called for).

BEA will be added to Oracle’s growing list of conquests and quite a few of its shareholders will make a killing.

To those who still hold on to the antiquated belief that a company exists because of its customers, the question is what kinds of benefits can customers hope to see from yet another mega takeover by Oracle?

And on that score, the picture doesn’t look great.

In the past five year years or so, with the incredible consolidation happening in the enterprise software space “choice” has gone out of the window.

Today’s ERP scene is remarkably different from the late 90s, when the vendor landscape included many strong players – Baan, SAP, PeopleSoft, J.D. Edwards, and Oracle – all competing for your business.

And this competition was certainly was good for customers because, if one vendor didn’t deliver, you had quite a few other options. But mega-acquisitions – mostly in the past three years – have shrunk these options, transforming a once diverse landscape into a monopolistic arena, essentially controlled by two players: Oracle and SAP.

Oracle executives take especial pains to emphasize the “benefits” of these buyouts to acquired companies’ customers.

For instance, in his keynote at last year’s open world Charles Phillips talked what he called the Oracle value-add for acquired companies. “We buy companies with world class technology and then add value to that technology.”

Phillips cited a few examples, including Oracle’s “quality assurance and testing” at its data centre in Austin, Texas – where acquired companies products are tested “to ensure they are truly best in class.” International market exposure, he said, is yet another benefit. “Many products aren’t ready for international market. We get them there providing multicurrency support and several other features.”

Finally, he alluded to “global support” as the other big value proposition, noting that Oracle has plugged the applications of some of the smaller companies it has acquired into its global support infrastructure.

These are enhancements their customers have been clamoring for – but never got until the company was acquired by Oracle, Phillips claimed. There’s no denying much of that is true but there’s also the price tag to all these benefits.

If the BEA deal goes through, one likely fallout, according to some analysts, is the significantly higher support and other costs customers are likely to incur.

According to Forrester Research analyst John Rymer in the event the acquisition goes through, BEA customers “are likely to pay premium support rates [to Oracle] if they stay on BEA products.”

He suggests that these customers start planning an exit strategy. “If you want to get off, you need to plan your migration. Getting a handle on those costs and the potential disruption now is about the most anyone can do until the drama reaches its final act.”

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Jim Love, Chief Content Officer, IT World Canada

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