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Icahn, Ellison Unlikely Allies
in BEA Buyout Battle”>
BEA is not in an enviable position. The company is caught between the cross hairs of two legendary corporate antagonists: Larry Ellison and Carl Icahn.
Ellison, as the CEO of Oracle, pursued and won perhaps the only hostile takeover battle in the history of the software industry with its bitter acquisition of PeopleSoft and he may be looking for a repeat performance with BEA. Icahn, as an institutional and personal investor, is notorious for putting public companies on the spot, threatening proxy battles if change isnt brought about to his liking.
On Oct. 28 BEAs board likely ticked off both camps. It let Oracles $17 per share bid for BEA slide by the wayside and apparently dismissed Icahns threats of a lawsuit that would force an annual shareholders meeting and a shareholder vote on a BEA auction.
On Monday BEA released a letter, addressed to Mr. Icahn, which made its intentions clear: BEA is for sale, but not at what it considers to be bargain basement prices. The question now is who will win—Oracle, Icahn or an unknown bidder—and at what price?
“It is important that there be no misunderstanding of the Boards position,” said BEAs letter to Icahn. “We are opposed to selling the company at $17 per share. We are not opposed to selling the company.”
BEA is requesting $21 per share, a price that Oracle has deemed “impossibly high” and that Icahn, who owns about 58 million shares of BEA, referred to as a “management entrenchment tactic, not a negotiating technique.”
Icahn also said that BEAs board should consider itself on notice for failure to both file quarterly financial reports since April 2006—backdating has been an issue—and for neglecting to hold an annual shareholders meeting in 15 months.
“You should have no doubt that I intend to hold each of you personally responsible,” Icahn wrote to BEAs board of directors.
Read more here about BEAs counter offer to Oracles $17 per share bid.
Icahn could choose to fix the companys perceived management problems by acquiring the company himself. As both an institutional and a personal investor, Icahn has three major investment means.
The first is Icahn Partners, a hedge fund that manages about $7 billion in assets and typically invests minority stakes in public companies and then pushes for change—and often creates some fairly lasting growth in the companys stock in the meanwhile.
He also owns a holding company, American Real Estate Partners, which buys beleaguered companies and fixes them up for later sale. Finally, Icahn invests personally in companies across a broad spectrum, from pharmaceutical manufactures like ImClone (he owns a majority stake) to telecommunications providers like XO Communications, which he also owns a stake in.
In its letter Monday, BEAs board intimated that it is has another buyer in the works, and reiterated the rationale behind pricing the company at $4 over Oracles offer. “In fact, we are currently exploring ways to maximize shareholder value, including the possible sale of the company,” reads the letter.
“The reason that Oracles $17 per share proposal is unacceptable to the Board is because it significantly undervalues BEA, and consistent with our fiduciary duty we will continue to vigorously oppose a sale to Oracle or anyone else at that price in order to protect the interests of all BEA shareholders.”
Analysts have suggested potential suitors including SAP, Hewlett-Packard and IBM most notably. SAP said in media reports Monday that it is not interested in buying BEA. Commitments from any other potential buyers, including HP and IBM, have not been forthcoming.
Oracles pitch for BEA highlights a potentially hot quarter for acquisitions. Click here to read more.
In a research note released Monday, Citi Investment Research analysts John Reilly Walsh and Kent Schofield wrote that Oracles offer of $17 per share was fair. “We see the $21 price point set by BEA as significantly raising the risk for an acquirer to have the deal be economically attractive.” Both analysts suggested previously that Oracle could pay as much as $20 per share and still make out.
The analysts posed the question thats on everyones lips: Whats next for BEA? “A proxy battle and lawsuits are likely if no other bidder emerges in short order,” wrote Walsh and Schofield. “Investor Carl Icahn has indicated the board should let the shareholders decide if and at what price the company should be sold and has threatened to sue and launch a proxy battle for control of the company.”
If a proxy battle unfolded where Icahn won control of BEAs board—along with a say in who the company is sold to—he and Ellison would likely stand to win.
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What would that look like for BEA customers? According to some PeopleSoft users, there should be some concern about Oracles service quality, which in turn begs the question of Oracles ability to integrate its myriad acquisitions.
“We feel like there is risk in moving forward with PeopleSoft, and were trying to assess that risk,” said George Muller, vice president and CIO at Imperial Sugar in Sugar Land, Texas, who is weighing an upgrade to PeopleSoft Enterprise 9. “From my perspective, there are a number of companies that have abandoned PeopleSoft and have gone in other directions.”
An active member of a number of PeopleSoft—and now Oracle—application user groups, Muller said he has seen a drastic reduction in the number of companies represented by at least one organization, DMUG (Distributors and Manufacturers Users Group), which bills itself as a product-specific group of PeopleSoft users.
Muller said there were about 150 companies represented at DMUGs annual meeting in New Orleans in April 2005. By October 2006, the group had dwindled to about 75 companies. “In a year and a half, what I witnessed was a 50 percent drop-off in participation,” he said. “Theyre either holding their own or they are going someplace else.”
Steve Canter, CIO of Berlin Packaging and current president of DMUG, said that while he has seen as good—or in some areas, improved—customer service under Oracles watch of PeopleSoft applications, the functionality upgrades are not what they used to be.
“One of the things we are seeing is, in many of the applications lines, there is not as much going on in terms of product feature enhancements as there once was,” said Canter, in Chicago. “PeopleSoft had decided after the JD Edwards acquisition that they were going to put more marketing behind the JD Edwards line—for manufacturers—so as a result, if they were not going to be leading with PeopleSoft on their go-to-market strategy, then there was not as much incentive to make enhancements.”
Oracle appears to be continuing this trend with some of the other product lines, Canter said.
Canter is staying with PeopleSoft for the foreseeable future because its too disruptive to move, but he is seeing some disturbing trends at Oracle, he said. For one, rather than integrating functionality that it acquires from other companies, as PeopleSoft would have done, Oracle is pointing to its other product lines, he said.
While the strategy to leverage other lines makes sense from a business standpoint, for a midmarket CIO its a tough pill to swallow.
“We dont have the resources to support a lot of different stacks,” Canter said. “And no matter how good application integration is, its better to have everything under a single umbrella; its one of the reasons we chose a single umbrella. But the world seems to be drifting away from that—led by Oracle.”
Customers also point to resources being moved away from core application development to Fusion development as the source for at least some of the issues with PeopleSofts software.
“A lot of strategy and development effort is going toward Fusion, and that cant help but take away from other product lines,” Canter said.
Oracles bid for BEA, which develops middleware, has brought Oracles Fusion efforts into question. The departure of John Wookey as head of application development for Fusion Applications has heightened concern about the middlewares prospects. Imperial Sugars Muller said that after 30 years in the IT business, hes found there is no perfect system, and Fusion Applications will be no exception.
“No matter how good your methodologies and processes are, putting something together and bundling something that massive is a huge undertaking and has R-I-S-K in capital letters written across the top,” Muller said.
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