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BEA Systems Inc. is disputing claims by Oracle Corp. president Charles Phillips that the two enterprise software companies had agreed to negotiate a proposed $6.6 billion deal. In a statement Friday afternoon, Phillips said BEA had agreed to meet earlier that day to begin merger talks, but that the company had canceled the meeting late Thursday night and declined to reschedule it. "Bill and I agreed on an accelerated process that would be, by anyone's standard, 'short in duration' and not 'open-ended' and that would permit BEA to not 'divulge competitively sensitive information,'" Phillips wrote, referring to William Klein, BEA's vice president of corporate development and business planning. A few hours later, Klein wrote to Phillips to clarify his "misunderstanding" and "set the record straight." "We did not agree to meet this morning to commence a process, and we did not agree to your proposal that the process result in a definitive agreement by Monday," Klein wrote. Both letters were sent hours after Oracle announced it had delivered the offer to BEA. The bid represents a 25% premium over Thursday's closing price of $13.62. In rebuffing Oracle's offer, BEA said it is worth "substantially more" than Oracle's $17-per-share cash offer. The company has not been able to file full financial statements recently, giving investors "limited visibility" into the company's true performance, Klein said in the rejection letter. Phillips has said it "remains available to discuss and complete a transaction quickly and efficiently." BEA has fallen short of slamming the door on a deal however. In its last letter to Phillips, the company confirmed that a friendly deal is possible, but that BEA is "worth substantially more to Oracle" and others. "We did say, and we will repeat here, that we will not engage in any process that would be open-ended or harmful to our shareholders," Klein wrote. BEA has also requested more information from Oracle about how it planned to proceed. A "friendly" deal between the two rivals may be wishful thinking. Billionaire investor Carl Icahn, who owns about a 13.2% stake in BEA, has been pressing for a sale of the company for weeks; BEA has responded that such a decision rests ultimately with the company's shareholders. Icahn was reportedly pleased with Oracle's bid on Friday, but told The Wall Street Journal that BEA should command a higher price. Speculation about an Oracle-BEA merger has circulated for years, and it escalated last week when one of Oracle's rivals, SAP AG, bid $6.8 billion for France's Business Objects SA. SAP, of Walldorf, Germany, is not excluding possible future big acquisitions, Chief Executive Henning Kagermann told the Financial Times recently. BEA sells application server software and so-called middleware, which is used by software developers to establish systems on which other software applications operate. Its products are used in transaction processing, billing, customer service, provisioning, and securities trading. Oracle, which competes with BEA in the middleware market, stands to gain handsomely should it succeed with the acquisition. The Redwood Shores, Calif.-based software giant would get a large recurring revenue stream, a significant installed base into which the company could cross-sell its own products and it would eliminate a major competitor, said Friedman, Billings, Ramsey & Co. Inc. analyst David Hilal. In a report Friday, the analyst said he expects Oracle will eventually acquire BEA for between $18 per share to $20 per share, which is in line with other analysts' predictions. If successful, the deal would make Oracle the No. 2 player in the middleware market, with a 20% worldwide market share, behind IBM Corp., which holds a 30% share, according to Citigroup Global Markets analyst Brent Thill. Oracle and BEA are currently tied for the second place spot with 10% to 12%, but Oracle has been a player in the middleware market for only 5 years, while BEA is a veteran with 12 years' experience.
An Oracle-BEA marriage is hardly a done deal, though. Other suitors could come calling, including IBM, Hewlett-Packard Co., Sun Microsystems Inc., Oracle finally decided to make a run at BEA for several strategic reasons, said Forrester Research analyst John Rymer. The offer came during the last month of BEA's quarter, so it will likely freeze any incoming BEA business; SAP, a possible rival suitor for BEA, is distracted with the Business Objects deal; and Icahn has been publicly pressuring BEA to sell. "You've got the stars in alignment here," Rymer said. He expects Oracle to continue to pursue the deal and BEA to eventually agree to a takeover. Goldman, Sachs & Co. is advising BEA on the offer, and attorneys Daniel Neff, Andrew Brownstein, Joseph Larson and Paul Vizcarrondo Jr., of Wachtell, Lipton, Rosen & Katz, are providing legal counsel to the San Jose, Calif.-based company. Deal Video
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