Analyst: BEA Systems' end game is near
And the potential buyer is two likely suspects: Private equity firms or Oracle, which indicated it has no plans to slow down its acquisition pace.
Here's what Credit Suisse analyst Jason Maynard had to say in a research note:
Over the course of the last few months we believe BEA is feeling more pressure to aggressively pursue a path that maximizes
shareholder value. We think the poor execution over the last few years has created a baseline of frustration and the recent April Q1 disappointment was the spark that set a series of events in motion that should lead to a positive outcome for shareholders. While management may still be hesitant about selling the business, it’s our opinion that they are rapidly losing the ability to influence that decision.
Maynard goes on to note that the next three to six months is likely to see BEA sold. The possibilities are going private or being bought by Oracle. Maynard said Hewlett-Packard, which is oft-rumored to be in the market for BEA isn't as likely to be a buyer relative to Oracle. In contrast, Cowen & Co. analyst Peter Goldmacher noted a few weeks ago that Oracle isn't likely to buy BEA because it could simply squash it.
An acquisition of BEA would give any purchaser some valuable middleware assets and a foothold in SOA technology. The problem for BEA is it's a smaller player in a land of giants like IBM and Oracle. SOA is a positive for BEA, but it "still seems to be years away from an inflection point," said Maynard.
The end game should become more visible as BEA's quarter winds down. Maynard adds:
Our early read on the July quarter suggests that execution is still an issue and making the mid to the high end of the guidance range will be tough. We continue to hear anecdotes about customer losses to Oracle and open source alternatives in addition to ongoing issues with field sales personnel. Another weak operating performance would undercut any hope that management might have about controlling their destiny.
Maynard reckons that BEA could fetch anywhere about $17 a share give or take a buck or two. He upgraded BEA to an "outperform' rating from "neutral" and gave the stock a $17 price target.
So how will this shake out? Here's Maynard's take.
We believe the most logical buyer is Oracle, given their position, scale, and proven ability to execute. It also doesn't appear other software/hardware vendors either have the desire or ability to execute the transaction. We think SAP ought to be interested, but a BEA acquisition doesn't seem to fit their model. IBM could also make a play, but we aren’t sure where there strategy is going and antitrust issues may be an obstacle. Finally, HP is a likely software buyer, but we think systems management and security make a lot more sense rather than BEA’s middleware technology. If we were in HP’s shoes we would go after Opsware and Symantec and make a push to own the systems management market.