BEA rejects US$6.66bn bid from Oracle

Oracle has offered to purchase rival BEA Systems for US$17 per share, a total of about US$6.66 billion in cash -- but BEA rejected the offer as too low.

If consummated, the proposed acquisition could eliminate issues regarding what BEA will do for growth while furthering Oracle's years-long effort to consolidate as much of the software industry as possible under its own roof.

"Oracle's...offer to purchase BEA Systems provides a logical conclusion to the questions surrounding the future of BEA," Technology Business Research analyst Stuart Williams said on Friday after Oracle announced its proposal. "Oracle can integrate the BEA technology directly into the core of the Oracle stack, strengthening it, while at the same time removing a competitor and adding close to US$1.4 billion in annual revenue to its coffers."

Oracle's offer, made in a Tuesday letter to BEA's board of directors, is a 25 percent premium over BEA's closing price on Thursday of $13.62. BEA's shares surged 33 percent, or $4.49, to $18.10 in morning trading on Friday.

BEA rejected the offer on Thursday. "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," William Klein, BEA's vice president of business planning and development, said in a letter to Oracle that BEA made public on Friday.

The fact that BEA's stock has risen well above Oracle's offering price indicates that Wall Street expects the company could sell for more. And given that BEA has adopted a shareholder rights plan -- known better as the "poison pill" that makes hostile takeovers much more difficult -- BEA has some bargaining leverage in discussions with buyers.

BEA, based in San Jose, California, has been under pressure from rivals including IBM, Oracle and a variety of open-source software projects and has long been considered a takeover target by Oracle and others. Despite introducing new product lines, new licence revenue has been tepid or has declined over the past two years. Meanwhile, billionaire investor Carl Icahn, who earlier this month boosted his stake in BEA to 13.2 percent, has been urging the company to put itself up for sale.

Oracle rose to its current position of power through sales of its database software, but the company has been expanding by buying other makers of so-called enterprise software used to run the operations of large businesses. In 2004, it won a hard battle to acquire PeopleSoft for $10 billion. In 2006, it swallowed Siebel Systems for $5.8 billion. And this year, it acquired Hyperion Solutions for $3.3 billion.

BEA's most widely used product today is its WebLogic software for running Java programs such as stock trading applications on servers. It competes directly with Oracle's Fusion suite of middleware, a term that refers to software that's used as a foundation for other applications.

But Redwood Shores, California-based Oracle has shown a willingness to allow competing products into its portfolio as long as they're more successful than its own, as was the case with those of PeopleSoft and Siebel.

Oracle is one of the leaders in a software industry consolidation race. Other contenders include SAP, which plans to buy Business Objects; EMC, which bought VMware, Documentum and RSA; Symantec, which bought Veritas; and Hewlett-Packard, which bought OpsWare, Neoware and Mercury Interactive. IBM, already a powerhouse, has purchased Ascential, MRO and FileNet in the past two years.

SAP's planned acquisition and the prospect of more may have helped spur Oracle into action, RedMonk analyst James Governor said. "Oracle can't afford for BEA to fall into SAP's hands," he said.

BEA itself has acquired Fuego and Plumtree Software, but the bulk of its revenue still comes from its core Java products.

One wild card for Oracle is open-source software, a movement that has seen growing traction and has expanded from the lower operating-system level to business software. Open-source software is freely available, collaboratively developed and often sold in the form of service subscriptions. It poses a long-term threat to the proprietary software at the heart of Oracle's business.

Another challenge is the movement to offer software as a service, in which customers tap into business applications over the Internet rather than run them on their own. Oracle is trying to expand in this direction, but it's not as high a priority as at rivals such as Salesforce.com that specialise in the approach.

CNET News.com's Martin LaMonica contributed to this report.