BEA's stance on Oracle deal pummeled

BEA's stance on Oracle deal pummeled

Summary: The reaction to BEA's rejection of a $17 a share takeover offer from Oracle is brutal.Of course, billionaire Carl Icahn has issues.

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The reaction to BEA's rejection of a $17 a share takeover offer from Oracle is brutal.

Of course, billionaire Carl Icahn has issues. But analysts aren't too thrilled either. Either BEA knows something the rest of us don't or is delusional.

A sampling of comments:

Credit Suisse analyst Jason Maynard, in a research note titled 'Hope isn't a strategy,' wrote:

BEA's shares could easily trade back to the $12-$14 level absent activist pressure and Oracle's bid. While BEA has reduced expenses, it still hasn't offered a sustainable strategy and demonstrated consistent execution to warrant a standalone share price above $17 let alone $21. We think the $17 per share proposal is more than reasonable, and certainly worth the time and effort of BEA's management team to begin earnest negotiations.

We are disappointed that BEA is taking such an obstinate stance given the apparent lack of other bidders and the fair valuation at $17 per share, or roughly 7.5x EV/maintenance revenue. It’s important to note that Oracle has paid between 7x-8x for the strategic deals of PeopleSoft, Siebel, and Hyperion. At $21 per share, BEA is asking for a price that is over 9x maintenance revenue and implies a strategic value that seems only to exist in the walls of BEA's headquarters. The fact that Oracle can afford to pay more is fallacious logic. We doubt another bidder is going to step forward with a materially better offer.

John Reilly Walsh, an analyst at Citigroup, wrote:

We think the $17 offer from Oracle was fair as it was: 1) above BEA's five-year high; 2) a 36% premium to BEA's 200-day moving average before the announcement; and 3) at 3.8x EV/rev above the average of software deals we've tracked over the last five years.  We see the $21 price point set by BEA as significantly raising the risk for an acquirer to have the   deal is economically attractive.

SunTrust Robinson Humphrey analyst Terry Tillman:

BEA's Board of Directors has likely given Alfred Chuang, the company's CEO, yet another chance to try and right the ship operationally, under the auspices of the company's latest grand technology play, Project Genesis.  Project Genesis is described as a new application-tier platform that is meant to converge its service-oriented architecture (SOA) technologies, business process management (BPM), Web 2.0 technologies and other tools and allow for both business and IT users to quickly assemble new application functionality. We believe investor fatigue with BEA and its inability to drive sustained license growth is notable and few want to hear of BEA espousing yet its latest and greatest platform technologies that will disrupt enterprise computing.

What's notable here is the general consensus that BEA can't stay independent. Welcome to the new software market. If you fail to execute you're going to be a part of a larger company--if you're lucky.

Topics: Browser, CXO, Enterprise Software, Oracle, Software, Software Development

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3 comments
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  • Busness Objects and SAP

    We can not view this BEA Oracle deal like the SAP purchase of Business Objects. Certainly there is an adjustment going on in the industry but not all consolidation makes sense outside of just getting shareholders to hold the shares a bit longer when other wise they might sell and purchase something better (adjusting in-effect on their own).

    In the SAP case, the SAP reporting system was based primarily on Excel. The use of a spread sheet for reporting makes little sense from the standpoint of reliability and hence the purchase of Business Objects which owned the well-used Crystal Reports software (previously included in every Microsoft tool kit) released, made sense big time.

    Virtually all SAP customers - certainly all the SAP independent consultants - could blow their horns in praise on that purchase because finally the possibility of printing reports instead of just viewing them in a spread sheet presentation (which can not be printed well) would be possible.

    The HP Compaq merger comes to mind. That deal put back into HP what a succession of "operational efficiencies" had taken out. Each operational efficiency moved talent out. It need not have been that way but this is clear to those of us who follow the talent. Each wave of lay offs made shareholders think the adjustments were being made and so they held longer than they should have. Eventually talent from Compaq and really the firms Compaq had acquired fixed that.

    So the question with the Oracle BEA deal is what does Oracle get that it can keep post merger? The talent isn't it. We are in a Web 2.0 opportunity age now and a no backdate of options age as well. Talent will adjust just like share holders and move on.

    Customer access perhaps is a justification but then Oracle is in 85 percent or more of the shops that BEA would be in anyway. (I am guessing here).

    The deal probably needed to be killed. Larry is right on this one.
    mighetto
  • RE: BEA's stance on Oracle deal pummeled

    It's probably unfashionable, but I wonder if this might be good - for business buyers of IT. I blogged on this <a href="http://www.mwdadvisors.com/blog/2007/10/putting-customers-first.html">here</a>.
    neilwd
  • RE: BEA's stance on Oracle deal pummeled

    I think BEA should negotiate, or very possible that they are behind the curtains.

    But I also, see a point that BEA is not obligated to accept the first offer and its in the shareholder's interest that they explore other options before they decide
    gsrinirau@...