Oracle has agreed to acquire enterprise-infrastructure software provider BEA Systems for $8.5 billion in cash -- up dramatically from the $6.7 billion Oracle bid that BEA's board of directors rejected last October. The sweetened deal is expected to close by midyear, subject to regulatory approvals.
The BEA acquisition "will be overwhelmingly complementary to Oracle's Fusion products, providing scale to our middleware business," Oracle Chief Executive Larry Ellison told analysts during a conference call.
Oracle Fusion middleware features "an open 'hot-pluggable' architecture that allows customers the option of coupling BEA's WebLogic Java Server to virtually all the components of the Fusion software suite," Ellison explained.
Filling Product-Line Holes
The acquisition will make Oracle second only to IBM in the key middleware market, wrote Forrester Research analysts John Rhymer and Mike Gilpin in a client report. However, the news "will likely be a short-term benefit to IBM because it removes a fierce competitor and allows them to play on the fear, uncertainty and doubt concerning the product direction of the combined entity," noted research director Dennis Gaughan at AMR Research.
BEA's products will fill some holes in Oracle's middleware product line by giving the business software giant "a full set of Eclipse-based development tools and a Java virtual machine that it doesn't have today," Rhymer and Gilpin said. Moreover, Oracle's service-oriented architecture (SOA) platform will gain a much-needed life-cycle management service through the addition of BEA's AquaLogic Registry Repository, which is a very strong product in that area, the Forrester analysts explained.
"Additionally, BEA has a strong track record in large-scale, complex Java applications, and Oracle will have the opportunity to make this its own," the analysts said.
There is basically a 100 percent overlap between BEA's Java/SOA products and Fusion Middleware, noted research director Dennis Gaughan at AMR Research. "And since most customers using BEA products are likely also using Oracle databases, there will not be a lot of net-new customers out of this transaction," he said.
"Many BEA customers have remained loyal to them over the years -- even as IBM and Oracle have tried to unseat them -- precisely because BEA was able to drive innovation into their products faster than the competition," Gaughan said. So just as it has done in the past with respect to other acquisitions, Oracle can be expected to continue to offer support for BEA products, Gaughan noted.
"Oracle has proven that it can make acquisitions like this work financially by continuing to sell and service the acquired company's products," Gaughan explained. "However, it's critical that Oracle maintain the innovative pace that BEA set with its product suite."
Splitting the Difference
Last October, BEA's board of directors spurned Oracle's unsolicited takeover bid of $17 per share. At the time BEA executives insisted that their company was worth "substantially more" and said they would be willing to recommend a bid in excess of $21 per share to company shareholders.
Oracle has now agreed to split the difference by paying $19.375 per share, a 24 percent premium over the stock's closing price on Wall Street one day before the deal's unveiling. Billionaire investor Carl Ichan, who owns 13.2 percent of BEA's outstanding shares, said he supports the deal.
"This transaction is an excellent example of the great results that can be achieved for all constituencies when the shareholder activist is able to work cooperatively with management," Ichan said in a statement.