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BEA rejects Oracle takeover offer

Oracle Corp, the business software maker, said on Friday it had made an unsolicited bid to acquire rival BEA Systems for US$6.7 billion, an offer BEA executives rejected as too low.

BEA, a rival in the market for corporate software known as middleware, is being pressured to sell by its largest shareholder, investor Carl Icahn.

"BEA is worth substantially more to Oracle, to others and, importantly, to our shareholders," William Klein, BEA's vice president for business planning and development, said in a letter on Friday to Oracle president Charles Phillips Jr. Klein said the deal was complicated by BEA's internal investigation into stock option grants.

Icahn said in a statement he agreed that, at US$17 a share, the price was too low, but that he was "pleased" that Oracle had made an offer.

The bid came a few weeks after Icahn increased his ownership stake in BEA to 13.2 percent in an effort to force the company to seek a buyer. Consolidation in the industry, Icahn said, could place independent software vendors like BEA at a disadvantage and staying independent could severely damage shareholder value.

Icahn has threatened a proxy fight to win a seat on BEA's board.

Oracle's all-cash offer, made on Tuesday in a letter to BEA's board, was a 25 percent premium over BEA's closing price of US$13.62 on Thursday. On Friday, BEA shares rose US$5.20, to close at US$18.82.

"We believe our all-cash offer provides the best value for BEA's shareholders and the best home for BEA's employees and customers," Phillips wrote to BEA.

Oracle has shown a willingness in the past to raise offers and analysts expected it to do so again.

In 2003, Oracle made a US$16 per share bid for PeopleSoft and spent more than a year fighting an antitrust battle. In the end, Oracle paid US$26 a share.

Since then, the company has spent more than US$21 billion buying 33 software companies.

David Hilal, an analyst at Friedman Billings Ramsey, said that Oracle would ultimately prevail in acquiring BEA, if only because other possible suitors may be reluctant to get into a bidding war.

BEA, facing strong competition from both Oracle and IBM, has long been considered a takeover target in an industry that has been consolidating for several years.

But BEA executives have dismissed Oracle's repeated overtures, saying it could perform better independently.

Acquiring BEA would firmly establish Oracle as the dominant player in middleware -- software that gets its name from its role as a layer of programming code that resides between a company's database system and the payroll, resource management and supply chain systems that use the same data.
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