Buyout Rumors Swirl Around BEA Systems

During the last week, the talk on the street about struggling BEA Systems has become more concentrated on not if the company will be acquired, but when it will be acquired.

The rumors first surfaced a full year and a half ago within the futuristic, rounded blue glass walls of its main application server and Web services competitor, Oracle, when whispers began among people "in the know" that Larry Ellison & Co. had its cap set to snare BEA, as soon as the situation was ripe. That is, when the stock price came down far enough.

In fact, Oracle Chairman Jeffrey O. Henley confidently told a respected financial analyst a while back: "Dont worry, well get them—but in our own time."

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Well, that situation may be coming to pass, and possibly sooner rather than later.

BEA, which makes the highly regarded Java-based WebLogic application server line, hasnt had outstanding financial reports of late. Its stock, selling at $11.41 at the close today, is back to exactly where it was a year ago, after setting a five-year high of $16 last November. Its been as low as $5 (in the second quarter of 2002).

Read here about BEAs WebLogic Server 10.

Its revenue for fiscal first quarter 2007 totaled $342 million, well short of Wall Street estimates of $357.8 million, and previous guidance of $350 million to $365 million.

After that most recent report, CEO Alfred Chuang said the company "saw a difficult selling environment, especially in the Americas, and several large deals slipped out of the quarter." He also said that the company made some changes in its sales organization in the quarter, which "caused some disruption in the short run."

Most analysts read between the lines fairly easily in that assessment: Oracle, Chuang could have simply said, is eating BEAs lunch. If Oracle swallows BEA, there goes yet another competitor down the gullet, as far as Larry Ellison is concerned.

With a market cap of $4.49 billion, a large installed base, and a solid reputation for quality IP and products, BEA would be a tempting acquisition for somebody. Its a fine company with good management and respected products that apparently is having a tough go of it from a sales perspective.

Trip Chowdhry, of Midwest Research in Cleveland, told Barons several weeks ago that he has heard very strong rumors in the Valley that the company could be acquired by Hewlett-Packard at around $15 a share.

eWEEK has heard the same rumor, indirectly from a BEA employee on the East Coast and from other sources. Like most companies, Oracle, HP and BEA—as one might expect—do not officially comment on rumors.

Chowdhry says his information is that 70 percent of BEA deployments happen to be on HPs hardware, so a merger—at least in terms of products—would be natural. He also believes that Oracle has dropped out of the bidding to buy BEA.

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