Oracle to Weigh Options after BEA Snub

Updated: Oracle can pursue several courses to try to overcome BEA Systems resistance to its takeover bid.

BEA Systems rejection of its initial bid overture leaves Oracle several options: Oracle can take the rebuff for what it is and leave the dance floor; or it can ante up as much as $3 more per share, some analysts believe.

Oracle can also file legal action against BEA, with the intent of getting it to remove the poison pill provision from its bylaws.

Oracle is pondering these options because the BEA Systems Board of Directors, in a Oct. 11 letter gave a polite thanks, but no thanks to Oracles bid, submitted two days prior, to acquire BEA at $17 a share, or about $6.66 billion. BEAs Board of Directors contended Oracles bid "substantially undervalues" the company.

Oracle President Charles Phillips later on Oct. 12 replied to BEAs answer with a letter indicating that Oracle was not prepared to increase its offer.

"Our proposed price is a substantial premium to an already-inflated stock price that reflected speculation of the potential sale of BEA and represents a more than 40% premium to BEAs stock price before the appearance of activist shareholders in mid-August of this year," Phillips wrote.

He also disclosed in the letter that the two companies were planning to meet Friday morning at 10 a.m. "to commence a process intended to result in the execution of definitive agreements before the open of business" on Oct. 15. However, BEA cancelled that meeting late Thursday night and "declined our invitations to reschedule," Phillips letter said.

Phillips wrote the Oracle, however, remained ready to proceed "with a process that would lead to a friendly transaction."

Boston Corporate Finance analyst Murray Beach said in an Oct. 12 research note that it believes Oracle would be willing to pay more for BEA than their current offer, but that any increase "could push the valuation into a zone that is tough to justify." He pointed to HP, Microsoft, IBM and Computer Associates as other possible suitors.


Click here to read more about what a BEA buyout might mean for Oracles Fusion Architecture.

BEAs rejection leaves the door open for additional suitors that might be interested in bidding on the company. For example analysts believe SAP might counter Oracles offer. A "private equity play is possible, but not likely," wrote Beach.

BEA appears to be holding out for a higher bid despite the fact that BEA has been under performing in the market and has been unable to state its earnings since 2006 due to a stock option snafu.

"It is apparent to our Board…that BEA is worth substantially more to Oracle, to others and, importantly, to our shareholders than the price indicated in your letter," reads the reply, signed by William Klein, and posted on BEAs Web site.

"As we have indicated to you previously, we believe that the absence of current financial information in the public markets limits investor visibility into our performance. We expect that this will be corrected in the near future when we become current on our SEC filings, and can communicate more fully with the investment community."

The letter, addressed to Oracle President Charles Phillips, requests more clarity in Oracles stated plans to "proceed….to a process" that leads to a definitive agreement.

"As we have made clear to you in previous discussions, we are very sensitive to the fact that Oracle is a direct competitor of BEA," reads the letter. "Therefore, the Board cannot consider any process which is long in duration, open-ended in nature, or would divulge competitively sensitive information which could materially harm our business and our shareholders interests."


Click here to read whether BEAs rejection of the initial buyout bid will prompt Oracle to up the ante.

In its disclosure on Oct. 11 that it had presented a letter of intent to BEAs Board, Oracle said it was basing its acquisition bid on previous conversations with BEA.

"We have made a serious proposal including a substantial premium for BEA," said Phillips, in a statement. "We believe our all cash offer provides the best value for BEAs shareholders and the best home for BEAs employees and customers. This proposal is the culmination of repeated conversations with BEA management over the last several years."

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