Oracle to buy BEA for $8.5 billion

Ending contentious three-month courtship driven by Carl Icahn, Oracle agrees to top by 14 percent offer rejected by BEA last year.

Oracle plans to acquire middleware maker BEA Systems for $8.5 billion in cash, the company announced Wednesday.

Under the deal, expected to close by the middle of the year, Oracle will pay nearly $19.38 per share. That purchase price is above Oracle's initial offer of $17 a share, which BEA had soundly rejected, saying it would need $21 a share for any party to enter acquisition talks with the company.

At the time, BEA's largest shareholder, Carl Icahn, expressed his outrage over BEA's rejection of Oracle's offer and threatened to launch a proxy fight. BEA later reached an agreement to show Icahn its financials under a nondisclosure agreement, in an effort to show it was worth holding out for more than $17 a share.

"Over the past several months, our board of directors...has reviewed various ways to maximize stockholder value, including engaging in discussions with third parties about a possible sale of the company," said Alfred Chuang, BEA chief executive. "The agreement with Oracle is the culmination of that diligent and thoughtful process."

Chuang, a BEA co-founder, had long been viewed in the industry and by Wall Street as staunchly opposed to any sale, as rumors over the years surfaced that . Over the years, BEA has faced growing competition from such rivals as Microsoft, Oracle, and various open-source companies.

Oracle, meanwhile, has developed Fusion Middleware, in which it will use BEA's technology to enhance its offerings. BEA's WebLogic Java Server will be coupled with the various components of Oracle's Fusion software suite.

"BEA has been a pioneer in middleware," Larry Ellison, Oracle founder and chief executive, said during a tightly scripted press conference. "Alfred is credited with a lot of those successes."

Ellison also noted that the acquisition would accelerate the adoption among the combined companies' customers of Java-based middleware technologies and service-oriented architectures (SOA). It will also increase the Oracle's footprint in key regions such as Greater China and in industries such as telecommunications, he said.

Oracle plans to retain and support BEA's product lines, similar to its work following the major acquisitions of PeopleSoft, JD Edwards, and Siebel Systems in the past few years.

Analysts said the deal makes sense on a number of fronts.

"There are a number of fundamental synergies between Oracle and BEA," Pat Walravens, an analyst with JMP Securities, noted in a research note. "The BEA acquisition would make Oracle the No. 1 player in the middleware space, pushing Oracle ahead of IBM. Over 50 percent of BEA's revenue is maintenance. Many of the PeopleSoft applications run on BEA's middle tier. In addition, many BEA shops run the Oracle database."

The deal is also expected to give Oracle a presence in the high-end of the middleware market, said Mike Gilpin, vice president and research director for Forrester Research.

"Oracle Fusion Middleware is doing well, but BEA is still the leader in the high-end market," Gilpin said. "Customers say BEA is expensive, but when they have an important workload and they want to make sure it will work, they'll use BEA. But then you have other customers, like a major bank on the East Coast, who will say they use IBM when they can because it's cheaper."

BEA also offers a high-end messaging product to supplement Oracle's offering and can dish out stronger enterprise-service-business technology via its AquaLogic product, which allows customers to use SOA technology to access information, Gilpin noted. Oracle in March acquired Tangosol, a transaction-processing specialist whose products should complement those of BEA as Oracle brings those assets under one roof, Gilpin said.

The merger will also give , a market it is just entering but one in which BEA's JRockit Java Virtual Machine has had a presence for several years.

Icahn said he was pleased with the deal as well.

"This transaction is an excellent example of the great results that can be achieved for all constituencies when the shareholder activist is able to work cooperatively with management," Icahn said in a statement. Icahn, who holds a 13 percent stake in BEA, said he plans to vote in favor of the merger.

Shares of BEA rose to $18.46 in early-morning trading, up more than 18 percent from its close of $15.58 on Tuesday.

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