Will Oracle revisit BEA?

Although Oracle Corp. dropped its recent attempt to purchase BEA Systems Inc. for $6.7 billion, analysts on Friday still expected the software giant to make a revised offer for its erstwhile target.

The question on many analysts' lips was whether the Redwood Shores, Calif.-based company would raise its bid, despite assurances earlier last week by Oracle CEO Larry Ellison that it would not.

The speculation of a new offer was prompted by BEA's fiscal third-quarter 2008 results, which were released Thursday afternoon and topped Wall Street estimates. BEA reported non-GAAP net income for the period, which ended Oct. 31, of $78.9 million on revenue of $384.4 million, compared with net income of $59.5 million on revenue of $347.7 during the year-earlier quarter. Analysts were expecting the San Jose, Calif.-based company to report net income of around $58.2 million and revenue of $375 million.

BEA's results were "solid," though "not as good as management pitched," Citigroup Global Markets Inc. analyst John Reilly Walsh wrote in a research report Friday. But Walsh said the results do "set the stage for Oracle to be engaged in a conversation about moving its bid above its initial $17 a share offer."

Walsh did not provide much guidance about how high a new bid might go, saying his "highest probability scenario" is that a deal gets done somewhere above OracleÕs offer of $17 per share but below the $21 per share that BEA executives said the company is worth. Walsh maintains a $20 price target on the stock.Friedman, Billings, Ramsey & Co. analyst David Hilal said BEA's positive results "could be a partial reason for Oracle to consider paying more," but not much more. "At the end of the day, there is a good chance that Oracle acquires BEA for roughly $18 per share," or $7.1 billion, Hilal wrote.

But Merrill Lynch & Co. analyst Kash Rangan was less upbeat about a deal. In a research report, he said the company's enterprise-value-to-free-cash-flow and price-earnings ratios are running at a premium to comparable companies, which he finds "hard to justify."

"We think the chances of BEA being acquired are low for now," Rangan wrote. "Oracle may come back later with a bid that is dramatically lower than its expired $17 offer, and perhaps subsequently raise it."

Ellison told analysts on Wednesday that if Oracle does make an offer for BEA sometime in the future it would be for less than $17 a share. Ellison might have been posturing, but has a fairly good track record of closing on properties he targets.

BEA chief executive Alfred Chuang on Thursday said the company is still open to a possible sale, though he was grilled by analysts on how it arrived at the $21 per share valuation.

"We did the valuation very carefully," Chuang replied, before deferring to other BEA executives, who cited the "typical things," including price-earnings multiples, synergies analysis and the valuations of other recent deals.

That response was met with some skepticism as analysts continued to probe the company on its own valuation, and on how aggressively it was exploring other alternatives beyond Oracle.

The fact that BEA actually reported its financials potentially clears the way for a deal. The company has not provided a detailed financial report since the second quarter of 2006 due to a review of its stock options practices. The spate of financial data BEA provided to the Securities and Exchange Commission clears a major hurdle blocking a possible acquisition of the company.

But the company also disappointed investors by saying it does not intend to conduct a stock buyback because it is still reviewing strategic alternatives.

Shares of BEA closed Friday down 2.1% at $16.35. -- Andrea Orr contributed to this report