Oracle's Second Attempt to Acquire BEA Succeeds for $8.5B

The merger is complete, but questions remain about the future of Fusion and Platform Market.

As it turns out Oracle is in fact the best buyer for BEA. After Oracle's first overtures for BEA in October 2007 -- followed by a heated battle between Oracle, BEA and its biggest shareholder Carl Icahn -- both companies announced Jan. 16 that they have agreed to merge.

Oracle will pay $8.5 billion for BEA, a 14 percent premium over its initial offer price of $6.66 billion. BEA had dug its heels in for more money following Oracle's first bid -- rightfully so -- and the ploy worked.

But the questions that were posed during the initial flurry of merger talks between the two companies remain today: What impact will the inclusion of BEA's middleware technology have on Oracle's three-year-old Fusion Middleware stack? What will any re-jiggering of Fusion Middleware mean for Fusion Applications? And ultimately, what impact will Oracle's acquisition of BEA -- the last remaining independent middleware provider -- have on the platform market where IBM, Microsoft, HP and SAP are fighting for dominance?

During a scripted call with analysts and press on the morning of Jan. 16, Oracle CEO Larry Ellison said that the acquisition of BEA represents "a very big step in our vision of becoming the strategic vendor of choice for our customers at every level of the stack, across industry verticals. With this deal we believe our open standards based technology stack will offer greater value than any other vendor -- than Microsoft, IBM, SAP, Sun and open source vendors."

Ellison said that although the two companies have numerous middleware products, BEA's product line and vertical market penetration are "overwhelmingly complementary" to Oracle's Fusion Middleware platform.

"To site just two examples, as soon as this deal closes we immediately become a leader in messaging and transaction processing platforms and a leader in the telco vertical," said Ellison.

BEA Chairman and CEO Alfred Chuang said that the deal is the culmination of a "diligent and thoughtful process" to maximize shareholder value (shareholder Icahn had pressed BEA to sell to Oracle at its earlier asking price.)

"As Larry talked about, our two businesses are a natural fit with Oracle's strength in database and applications and BEA's leadership in middleware," said Chuang. "I am proud of what we have accomplished in the last 13 years at BEA and I fully expect that our leadership will contribute significantly in the combined company."

Forrester's analyst Ray Wang said that the bottom line with the deal between Oracle and BEA is that Oracle's long term mergers and acquisition strategy centers on gaining the biggest install base around applications and middleware -- and selling more databases.

"We expect accelerated consolidation along key battle grounds of middleware platforms such as MDM [master data management], Business Intelligence, Portals, BPM [business process management], and other Information Management tools," said Wang.

"Other vendors like SAP, IBM, and HP need BEA more than Oracle does. SAP's NetWeaver is among the weakest of middleware platforms, despite one of the strongest ecosystems. IBM will be threatened by an Oracle dominance in middleware and continued challenge of commoditizing vertical service offerings into software solutions. HP could use this as an entry point to gain traction in the market. SI's who've built a long term strategy around BEA as an independent platform may seek to assist BEA."

AMR analyst Dennis Gaughan said that while there are a lot of overlapping middleware products between Oracle and BEA, there are no immediate implications for Fusion Middleware -- or Fusion Applications, Oracle's next generation application suite that sits on top of Fusion Middleware.

"Oracle is so far down the path before using Fusion Middleware to tie together Fusion applications [that there is really no impact with BEA]." Said Gaughan. "This is really about building a customer base. The last thing Oracle wants to do is upset the apple cart on the applications side. They've just gotten customers to buy in [to their Fusion strategy] so to make too quick a change in direction in what middleware they will use -- I don't think they are going to do anything radical there."

Celent financial analyst Bart Narter said in an email that the BEA acquisition brings best of breed functionality to the middle layer of the Oracle Fusion platform - the company's SOA software. "Oracle has been lagging in this area, and when they can't build, they buy," wrote Narter. "With this purchase Oracle can now go head-to-head with other companies such as IBM and SAP in offering SOA infrastructures to the largest enterprises."

As Wang points out, Oracle seeks to dominate the middleware platform market. The rationale: those platforms provide the nexus for software ecosystems.

"Each vendor's last mile solutions depend on a strong middleware tool and a community of individuals and solutions providers who build and extend the platform for vendors," said Wang. "Whoever owns the future platform, an applistructure on middleware or a SaaS platform like will emerge as winners in the post internet era. Acquisition also marginalizes SAP NetWeaver's role as a standalone middleware solution and puts Oracle in direct competition with IBM."

Oracle expects the deal with BEA to close mid-2008, subject to BEA shareholder approval and other regulatory approvals -- or absent a better offer from another vendor.