BEA Offers Icahn Sneak Peek at Its Finances

By giving the shareholder a look at its restated records, BEA hopes to fend off an Icahn lawsuit and proxy battle.

BEA Systems' financial team is under some serious pressure.

The group, working alongside independent auditors from Ernst & Young, is trying to straighten out the company's financial picture as quickly as possible, a job that is further complicated by the ongoing debate over the BEA's future and a threatened proxy battle by its largest shareholder.

Unless BEA can present an accurate picture of its earnings, the San Jose, Calif. company faces a proxy conflict undertaken by corporate raider and personal equity investor Carl Icahn.

BEA announced Nov. 5 that it will share confidential business information with Icahn, who owns 58 million shares of BEA, in the hopes of proving that Oracle's expired $17-per-share bid for BEA undervalues the company. Icahn filed suit in Delaware Chancery Court Oct. 26 to force a proxy battle for BEA's board of directors, and in turn a sale to Oracle.

BEA officials believe they can stave off the proxy battle by giving Icahn a peek at its profit-and-loss sheet.


To read more about Oracle's withdrawl of its offer to buy BEA, click here.

"We are confident this information will enable [Icahn] to appreciate that the $17 bid from Oracle significantly undervalues BEA in a sale," BEA Chairman and CEO Alfred Chuang said in a statement. "All shareholders' interests are aligned in this regard."

On Oct. 26, Icahn released a letter to BEA's board warning the directors against any "scorched earth transactions," including stock issuances, asset sales or acquisitions. In his statement, Chuang said BEA's directors want to dispel speculation that they would engage in any such transactions as a way of entrenching their members.

"We will undertake no such actions," he said. "Our goal has always been to maximize shareholder value, and we continue to explore ways to further this fundamental goal, including the possible sale of the company."


Because of its efforts to restate its earnings, BEA has not held an annual shareholder meeting in 15 months, nor has the company filed a 10-K or 10-Q for an accounting period since April 2006. Under the laws in Delaware, where BEA is incorporated, investors are able to request the Chancery Court to force an annual shareholder meeting if a company hasn't held one in more than 13 months.

Icahn is requesting that the court order BEA to hold its shareholder meeting by Nov. 30, two weeks after NASDAQ's deadline. In September, NASDAQ gave BEA until Nov. 14 to file all delinquent periodic reports.

While a Nov. 30 shareholder meeting might be cutting it close, BEA has a lot at stake to get its financial house in order before then. If the company is unable to present current audited financials, it will be unable to solicit proxies for its four directors that are up for re-election. Icahn will have an open field to nominate his own slate of directors that would, presumably, be open to a buyout at $17 per share.

That said, if the situation at BEA does proceed to a proxy fight, with a maximum of four handpicked board members Icahn would still not have a quorum, unless current BEA board members flip-flopped to Icahn's way of thinking with a vote to sell the company to Oracle.


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