Oracle Corp. today stepped up its long courtship of middleware software vendor BEA Systems Inc. with an unsolicited bid to buy the company for $6.66 billion in cash.
The deal, if approved by BEA's board of directors and regulators, would continue Oracle's aggressive growth-through-acquisition strategy and would pose a challenge to Oracle's two principal middleware competitors: IBM and Microsoft.
Oracle said it was prepared to pay $17 per share for BEA. That represented a 25% premium over BEA's share price of $13.62 at the time of Oracle's announcement. By press time today, BEA's shares had risen to $18.13, up over 33%.
In a prepared statement, Oracle Co-President Charles Phillips confirmed widespread reports that Oracle has been seeking to acquire BEA for some time. "This proposal is the culmination of repeated conversations with BEA's management over the last several years," Phillips said. "We look forward to completing a friendly transaction as soon as possible."
In a letter from Oracle to BEA's board of directors, the company said it was "prepared to proceed immediately to a process that leads to a definitive agreement."
BEA officials had not publicly responded to Oracle's announcement by press time.
Experts said Oracle's decision to go public with its offer is intended to put pressure on BEA to accept a deal, something that BEA managers have said they are reluctant to do.
"Obviously, bringing the offer into the open does put a lot of pressure on BEA's board," said Laurent Lachal, senior analyst at Ovum, in a published report. "We'll have to wait and see what their reaction will be."
Also applying pressure for BEA to accept a takeover offer is investor Carl Ichan. In recent weeks, Ichan has been increasing his holdings in BEA while publicly calling for the company to accept a sale.
A BEA acquisition would continue Oracle's rapid acquisition run and bolster its middleware market share. The company, over the past three years, has spent an estimated $22 billion to acquire 33 software companies, including PeopleSoft, JD Edwards, and Hyperion.
The strategy appears to be paying off. In the most recent fiscal quarter ended Aug. 31, Oracle reported a 26% rise in revenue and a 25% increase in earnings. The stellar results were led by Oracle's applications and middleware business. Applications revenue was up by 36% in the quarter, while revenue from middleware products was up 129%, according to Phillips.
That growth has enabled Oracle to gain ground on its two principal middleware competitors, Microsoft and IBM. In a recent conference call with financial analysts, Oracle CEO Larry Ellison acknowledged that Oracle is still third in market share behind those competitors. But, he said, if Oracle continues its middleware revenue growth at its current pace, it would catch IBM by the end of 2007.
"Our target is to beat IBM," Ellison said.
Adding BEA would be a big boost to Ellison's ambitions. BEA claims 15,000 middleware corporate customers. More than half of the Fortune 500 uses BEA middleware, the company claims. Oracle, meanwhile, claims 53,000 middleware customers.
Besides adding customers, BEA would fill in gaps in Oracle's middleware product line. And Oracle would fill gaps in the BEA product line. Both companies' product lines include basic middleware elements, such as application servers, portal servers, enterprise service buses, business process management servers, and event management suites. BEA, however, is stronger in Java tools, with its own Java Virtual Machine and real-time Java products, according to John Rymer, an analyst with Forrester Research. BEA also has the Tuxedo transaction monitor, while Oracle has no comparable product, Rymer said.
Oracle, on the other hand, has stronger offerings in identity management, business process modeling, and business activity monitoring, Rymer said.
The substantial overlap in the BEA and Oracle Fusion Middleware product suites raises the question of whether Oracle's future application suite — Fusion Applications — would be based on the Oracle or BEA middleware technologies, according to Ray Wang, also an analyst at Forrester.
"The BEA platform reaches out to more non-Oracle shops and provides a truly open platform for integration with less lock-in at the meta data and process levels," Wang said.
Oracle officials were not available to discuss product line integration plans should the deal go through.
Meanwhile, Wang said, there's a strong possibility that Oracle competitors could make their own bids for BEA. "Other vendors, like SAP, IBM, and HP, need BEA more than Oracle does," Wang said. IBM, in particular, would be threatened by an Oracle/BEA combination, he added.