Oracle and BEA: What happens next?

Despite consistent pressure from acquisition-happy Oracle, leadership at BEA Systems leadership has so far resisted selling itself to the software giant. Oracle now says it is prepared to pull its US$6.7 billion offer for BEA off the table.

What happens next may be anyone's guess.

"There's information the public knows, and there's information really known" only by each company's board of directors, notes Ari Kaplan, president of the Independent Oracle Users Group (IOUG).

Oracle offered to purchase BEA for $17 per share on October 9 and was promptly rebuffed.

In the pursuer's latest move, Oracle President Charles Phillips sent a letter to BEA's board demanding that BEA let shareholders vote on an acquisition agreement. Unless that happens, Phillips said Oracle's offer will expire Sunday, Oct. 28 at 5 p.m. pacific time.

That could be just the beginning of a long, drawn-out process, even though both companies have said they want to avoid a lengthy ordeal.

Instead of rejecting outright any attempt at an acquisition, BEA is leaving the door open for a better offer to emerge from Oracle, or perhaps other suitors.

"BEA's Board has not indicated that it would be opposed to a transaction that appropriately reflects BEA's value, reached through a reasonable process," BEA's William Klein, vice president of business planning and development, wrote in an Oct. 23 letter to Oracle President Charles Phillips, hours after Oracle threatened to take its offer out of play. "If Oracle is genuinely interested in acquiring BEA, you are fully capable of proposing a reasonable price to the BEA Board or taking any offer you wish directly to BEA shareholders."

A poison pill provision in BEA's bylaws would prevent an acquisition without agreement from the board of directors, says Brad Shimmin, principal analyst for application infrastructure at Current Analysis. If BEAÂ has such a provision, Oracle could go to court "to have [the poison pill] removed and swoop in and do a hostile takeover," Shimmin says.

"I don't think [Oracle is] threatening to pull the bid so much as they are stating that they believe it's a fair bid and they hope BEA reconsiders," Shimmin says. "I don't think it's really a question of showmanship for the money. I think if BEA does not reconsider ... then Oracle very likely could start a legal process to make the acquisition go through."

Shimmin is not expecting a bidding war between Oracle and other potential buyers, "because other vendors who were possibilities have all denied any interest in [buying BEA]," he says.

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.

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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 Kaplan of the 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 US$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]."