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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.”
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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But Oracle has played the coy suitor before. Do not count it out, yet.
Plus, HP has some other issues with which to contend.
To read about HPs purchase of Opsware, click here.
“HP cant pay more than $6 billion (based on 420 million outstanding shares at a price of $14.50 to $15, or about three times sales) for BEA without seriously exposing itself financially,” Bob Stimson, a Boston-based financial analyst who follows both Oracle and BEA for WR Hambrecht + Co., told eWEEK.
“On the other hand, Oracle could pay from up to $17 or $18 per share, but that would assume that Oracle could get a lot of cost synergies at a 20 to 25 percent expense reduction.”
Like Oracle, HP has been in acquisition mode for the past year. The company, which is based in Palo Alto, Calif., announced last month that it is buying Opsware for $1.6 billion, and it added Mercury Interactive for $4.5 billion in July 2006. Perhaps it has had its fill of swallowing others for a while.
Oracle last spring bought business intelligence supplier Hyperion for $3.3 billion.
“I think that the two companies [HP and BEA] have talked,” Stimson said. “And about six weeks ago, they decided to leave it at a strategic partnership level. Thats when people were expecting the take-out [acquisition news], but it didnt happen that way. They decided to keep dating rather than get married.”
Credit Suisse analyst Jason Maynard is another expert who believes that the BEA, based in San Jose, Calif., may be acquired in the next three to five months for a buyout price of $15 to $18 per share.
“The recent market speculation about an HP takeover is more wishful thinking than reality,” Maynard wrote in a recent report. “Using our leveraged-buyout analysis, we believe a financial buyer could pay somewhere around $15 to $16 (per share), while a strategic buyer has the potential to pay $1 to $3 (per share) more.
“While management may still be hesitant about selling the business, its our opinion that they are rapidly losing the ability to influence that decision.”
He thinks the company will likely be acquired by a private equity firm or by—you guessed it—Oracle Corp.
Meanwhile, Oracle sits quietly, waiting for things to fall its way. Time, it seems, is on its side.
Well keep our eyes on this developing situation here at eWEEK for you.
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