Will BEA Sell to
BEA Systems may have rejected Oracles initial offer of $6.7 billion, but that may not deter the software giant from continuing its pursuit.
Given Oracles history of aggressively pursuing the companies it wants—most notably eventual acquisition of PeopleSoft in 2004 after months of sometimes bitter resistence—and the fact that top BEA investor Carl Icahn has been pushing BEA officials to sell, the idea of a more hostile takeover by Oracle is not far-fetched.
In addition, despite months of protests by BEA officials to the contrary, a sale to Oracle would make sense for the company, its shareholders and its customers, according to industry observers.
BEA officials were not available for comment Oct. 12, after Oracle made its bid public. However, at a Bank of America investment conference in September, Kevin Faulkner, BEAs head of investor relations, said the San Jose, Calif., company would not consider selling because it would get lost inside a bigger sales force. Faulkner at the time was trying to put to rest rumors about a potential BEA sale based on pressure from Icahn, who had just upped his investment in the company from 11 percent to 13 percent and had wanted to sell.
Despite the earlier protestations by Faulkner and other BEA officials, industry observers believe a sale—to Oracle or someone else—will happen.
“BEA is in play,” said John Rymer, an analyst with Forrester Research. “I believe it is just a matter of time…and money.”
Marc Fleury, whose JBoss organization is said to have been courted by Oracle, in a blog post, said BEA Chairman and CEO Alfred Chuang “is going to put up at least a simulacrum of a fight. … [Chuang will] put a heartfelt final battle into this; he has probably already super-glued his naked chest to the BEA boardroom table. It is going to get nasty and he will be dragged out kicking and screaming.”
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On the financial front, Fleury said Icahns “shareholder activism” has put into the public realm the case that BEA is more valuable to stakeholders if its acquired rather than by going it alone. “The 52-week stock price range on that puppy is $10/$17, so $18 [what Oracle is offering per share] sounds damn good,” he said. “I cant wait for the first official communication from BEA.”
In a brief interview with eWEEK, Fleury said the deal makes sense, given that buying companies and integrating them is how Oracle grows. “BEA software will go in maintenance mode and [Oracles] Fusion-plus-WebLogic/AquaLogic [from BEA] will merge,” he said. “That will take time. Who stands to gain? IBM and Red Hat. Some people may leave BEA if Oracle is taking over, but I doubt it will be a big effect.”
“My first impression is that this is very much akin to Oracles PeopleSoft play—buy market share,” said Tony Baer, founder of onStrategies, a New York consulting and research firm. “This is further inevitable consolidation in the market. BEAs obviously squeezed; nature abhors a vacuum.”
Baer said that businesses are not buying just middleware anymore, theyre buying platforms. As proof, he said even JBoss is now part of a Linux technology stack though its acquisition by Red Hat.
“BEAs tooling would help Oracle fill out its rather schizoid Eclipse strategy,” he said. “Yup, theyre a member of the board, they lead a couple projects, but nope, their main development tool will never be Eclipse compliant.”
However, Baer said he expects BEAs tools will survive. “Just as Oracle on the ERP [enterprise resource management] side has preserved support for J.D. Edwards, Peoplesoft, etc., it will enable Oracle to say, We support two styles of development, Eclipse and not,” Baer said. “Oracles goal aint dominating the world with JDeveloper; its getting the world to come together under its Fusion big tent.”
Forresters Rymer said he expected somebody to bid on BEA, but that he thought officials with Oracle, of Redwood Shores, Calif., would wait until someone else made the first move. Still, he said, “This move fits Oracles recent pattern. It trying to buy something it doesnt have today—a presence in high-end Java Web applications. BEA has that in spades. Second, it is buying healthy maintenance revenue stream. Way down on the list, they are filling some technology gaps in portal and advanced Java implementations in particular.”
Rymer said there are many synergies that exist between the two companies. For instance, BEA has established enterprise platforms in Tuxedo and WebLogic Server. The company also has a strong integration business in WebLogic Integration, which competes with IBM, Software AG/WebMethods, Sun/SeeBeyond and Tibco.
“Oracle is investing to attain this sort of market presence,” he said.
Moreover, BEA has a large presence in telecommunications and brokerage that Oracle would love to have, Rymer said. In addition, BEA and Oracle both have strong a presence in the public sector, although BEA casts a larger shadow in middleware in that sector is stronger than Oracle does, he said. Oracle also is seeing high growth rates from middleware and wants to expand its addressable customer base and its product set, Rymer said.
BEA also would give Oracle a footing with large customers, which would enable Oracle to better compete with IBM in middleware, Rymer said.
Still, this acquisition would force Oracle to deal with significant product overlaps, he said.
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Will BEA Sell to
Bart Narter, an analyst with Celent, a Boston-based financial research and consulting firm, agreed that the BEA deal would fit Oracles tradition of buying best-of-breed technology.
“BEA offers top-notch applications servers, ESB and BPM software,” Narter said. “With this purchase, which comes just days after SAPs bid for Business Objects, Oracle can now go head-to-head with other companies, such as IBM and SAP, in offering service-oriented architecture [SOA] infrastructures to the largest enterprises.”
James Governor, a London-based analyst with RedMonk, questioned why this move was not made three years ago.
“One answer to that question may lie with SAP,” he said. “Oracle has likely felt pretty safe in the knowledge that no one else was going to buy BEA. IBM, no, and few other software companies could make a deal stick. With SAPs bid for Business Objects this week, however, everything changed. SAP made a clear statement that its business model was set for major change [and] M&A [mergers and acquisitions] was now firmly on the table.”
When he heard of Oracles bid, Ron Schmelzer, an analyst with ZapThink, thought, “Its about time.”
Schmelzer said BEA has not been able to clearly differentiate or adequately articulate its SOA offerings or products in the market for the past two years. IBM, Software AG and others have been able to much better capitalize on the new opportunity that SOA represents, “while BEA still seems to waffle between being a Java infrastructure company that wants to urgently work its way up the stack or a heterogeneous SOA player that is still too committed to the underlying Java platform to make their vision a reality,” he said.
In general, BEA faces a crossroads, he said. The company must either pursue the best-of-breed and stay true to its Java-based infrastructure roots or pursue a platform strategy, which means more aggressive acquisition activity, Schmelzer said.
“This might be the right time for BEA to be absorbed by another party, if it cant adequately and convincingly make that decision,” he said. “Oracle certainly is a good home for BEA. It consolidates the SOA infrastructure runtime market and helps to advance the Oracle Fusion picture with BEAs AquaLogic Service infrastructure play. I think it would be a win for BEAs customers to be part of the Oracle portfolio.”
Burton Group analyst Anne Thomas Manes said BEA has a stronger presence in a number of markets than does Oracle, including the Java Enterprise Edition application server, integration broker, enterprise service bus, SOA governance, data services and portal. Although Oracle is a significant player in most of these markets—with the exception of SOA governance and data services—”IBM and BEA clearly dominate,” Manes said. “Assuming that Oracle manages to execute the acquisition reasonably well, it will put Oracle on equal footing with IBM.”
Yet, Manes said should the deal go through, Oracle would “embrace the BEA middleware family over the existing Oracle Fusion middleware stack.”
How the deal would go through is still unclear, analysts said.
“Oracles bid is likely hostile,” Rymer said. “I dont expect BEAs board to accept it. So the game is just beginning. Other bidders may emerge. SAP needs BEA more than Oracle does to bolster its middleware. But can they do both Business Objects and BEA? IBM would make sense—buy BEA to consolidate the high-end of Java Web app market and keep Oracle out. Sun and Cisco are dark horses. Everyone will talk about HP, but I doubt that.”
Hewlett-Packard as a buyer also crossed Baers mind. However, he said, “Theyve got their hands full already, BEAs not as synergistic as Opsware. And of course, we all remember Bluestone.”
Dennis Callaghan, an analyst with The 451 Group, noted that BEA has had some issues with delinquencies in its regulatory filings and so could be open to a sale.
“Itll also be interesting to see if HP steps in,” he said. “Theyre pretty bullish on software and are becoming strong in SOA management since buying Mercury. Buying BEA would give them a nice middleware counterweight to IBM—their biggest rival. HP and BEA have a very close relationship today and Chuang would likely be more open to being acquired by them than by Oracle.”
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