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BEAs dance card is empty, and Oracle is using that fact as a large lever against paying a premium for the company.
In parlance typical to Oracle, its board of directors sniggered at BEAs counter bid of $21 per share—$4 more than Oracles proposal of $17 per share—characterizing the price as “an impossibly high price for Oracle or any potential acquirer.”
In an Oct. 25 letter to BEAs board, Oracle scoffed at BEAs asking price and threatened to walk on its previously stated deadline of Oct. 28 if BEA doesnt take Oracles offer.
In the letter, Oracle said that at $21 per share, BEA is asking for an 80 percent premium to BEAs stock price, “before the appearance of activist shareholders who are pushing the BEA board to sell the company.”
Carl Icahn, a billionaire financier and private equity investor with enough cash in his pocket to buy BEA outright at even its highest asking price of $8.2 billion, has been urging the company to sell based on a declining market share. Icahn owns 13.2 percent of BEA. Oracle said in its letter that BEAs asking price is a multiple of nearly 11 times BEAs last 12 months reported maintenance revenue.
Click here to read more about BEAs counter.
“Nobody would seriously consider paying that kind of multiple for a software company with shrinking new license sales,” said Oracles board in its letter to BEA.
The problem for BEA, of San Jose, Calif., is it has no counter to Oracles argument. As of Oct. 26, no other suitors have stepped forward to request BEAs hand in a merger. In its letter to Oracles board released earlier Oct. 25, BEA reiterated that Oracles bid undervalues the company and is not in the best interest of shareholders. “Accordingly, we will continue to vigorously oppose a sale to Oracle at $17 per share,” the BEA board said.
BEAs board authorized its legal counsel, Wachtell Lipton Rosen & Katz, to deliver a draft merger agreement to any third parties that are willing to bid for the company “and provide an appropriately high degree of certainty of closing,” according to BEA.
Industry watchers have pointed to an elite group of companies that might be interested in acquiring BEA, and that have the money to do so. The short list boils down to IBM, SAP and Hewlett-Packard.
In an Oct. 25 research note, Celent analyst Bart Narter pointed to Oracle, of Redwood Shores, Calif., as the best match for BEA despite Oracles Fusion Middleware stack that—if Oracles marketing machine is to be believed—is superior to BEAs middleware offerings.
“IBM has broad and deep product line under the WebSphere brand [which] BEA competes with more than complements IBM,” Narter wrote. “SAP has developed NetWeaver internally and has sufficient uptake in the market that it would not be interested in switching to BEAs technology. SAP generally prefers to build rather than buy key technology (with the recent big exception of Business Objects). HP has no compelling reason to buy BEA. It could work, but they havent shown the appetite to purchase or build SOA software in the past.”
Oracle, Narter said, is the best fit given that it has “tried to create SOA software under the Oracle Fusion label and could use an extra boost in this area.”
In its letter to BEA, Oracle again urged BEAs board to let shareholders vote on the $17-per-share offer. “If BEAs objective is to remain independent, then the $21 per share counterproposal is a perfect strategy because there are no bidders,” said Oracle. “If the BEA board continues to refuse to execute an acquisition agreement at $17 per share…Oracle will move on and evaluate other potential acquisitions.”
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