BEA says no to Oracle's $6.7B bid

BEA Systems says Oracle's offer to buy it significantly undervalues the company; bidding war seen possible as BEA shares soar over offer price.

By Chris Isidore, senior writer

NEW YORK ( -- BEA Systems has rejected a cash bid for the company from rival business software provider Oracle that appeared to signal the start of a bidding war for the company.

Early Friday Oracle (Charts, Fortune 500) announced it was offering $17 a share for BEA (Charts), a leading provider of application software for computer servers. That's worth about $6.7 billion, based on BEA's total shares outstanding, and represented a 25 percent premium over its previous close.

Oracle has launched a bid for rival business software provider BEA Systems. Activist shareholder Carl Icahn, who owns 13.2 percent of BEA, has said in a filing he would push management to consider a sale.
Oracle has launched a bid for rival business software provider BEA Systems. Activist shareholder Carl Icahn, who owns 13.2 percent of BEA, has said in a filing he would push management to consider a sale.

But while Oracle's statement said it wanted to complete a friendly acquisition, BEA Systems issued a statement early Friday afternoon in which it announced it had already rejected the offer the day before.

"It is apparent to our board, however, that BEA is worth substantially more to Oracle, to others and, importantly, to our shareholders than the price indicated in your letter," said the letter BEA sent to Oracle president Charles Phillips, released as part of its statement.

BEA's letter to Phillips said it expected its share price was unduly depressed because it is not current in its SEC filings, and it expects to correct that situation in the near future.

Shares of Oracle were little changed in early afternoon trading following BEA's announcement, but shares of BEA were up 38 percent to $18.80, easily topping the cash offer price, on the news.

Trip Chowdhry, managing director of Global Equities Research, said he believes there will soon be a bidding war for BEA between Oracle and its German rivalSAP (Charts) that could take the price of BEA as high as $21.

He said talk in the industry is that SAP has already made private bids for BEA to fill in gaps in its own product line. He said Oracle is interested in buying BEA both to block its purchase by its key rival, as well as to enhance its own competitive position with companies such as IBM (Charts, Fortune 500).

Oracle's offer was contained in a letter to BEA's board. Despite releasing details of the offer without a sales agreement, Oracle said it is not looking at this as a hostile bid.

"We believe our all-cash offer provides the best value for BEA's shareholders and the best home for BEA's employees and customers," said a statement from Oracle President Charles Phillips. "This proposal is the culmination of repeated conversations with BEA's management over the last several years. We look forward to completing a friendly transaction as soon as possible."

Oracle has made successful hostile bids for companies in the past, including PeopleSoft, which finally agreed to be purchased in 2004 after more than a year-long battle. But it has also completed friendly acquisitions, including Siebel Systems, a deal that it made in 2006.

Officials at San Jose, Calif.-based BEA Systems were not immediately available for comment on the Oracle announcement.

It has faced pressure from activist shareholder Carl Icahn to sell itself. Filings by Icahn earlier this month list him as now holding 13.2 percent of BEA shares, while other entities associated with him have additional stakes.

Icahn said in a filing a month ago that he believes "that a strategic acquirer could utilize greater resources and market presence" than BEA can as an independent company, and that he would "seek to meet with [BEA] discuss the potential for such a transaction."

BEA products support functions such as transaction processing, billing, customer service, provisioning and securities trading. Oracle's statement said that if it acquires BEA it would continue to support its customers and products for years to come.

BEA has seen solid growth. According to a survey of analysts by earnings tracker First Call, BEA is forecast to see earnings rise 21 percent in the current period, which ends in October, and 31 percent for the full fiscal year, which ends in January. It has topped quarterly earnings forecasts five times in the last eight periods, and met the forecasts the other three times.

But when it missed revenue forecasts for its fiscal third quarter a year ago, it saw its shares plunge 16 percent in one day, and they have yet to recover from that loss.

That has left BEA shares underperforming the sector. They are down about 10 percent over the last year, while the Dow Jones U.S. software index is up about 10 percent in the same period.  Top of page