Oracle makes offer for BEA Systems

Pouncing on a vulnerable rival, Oracle Corp. has offered $6.7 billion to buy BEA Systems Inc. in its latest bid to trump SAP and IBM Corp. in an increasingly intense business software battle.

Oracle unveiled its $17-a-share cash offer Friday, one day after BEA rejected it as inadequate, according to a letter BEA released a few hours after Oracle’s revelation catapulted its stock to a 52-week high.

San Jose-based BEA makes “middleware,” or products that help software applications run more smoothly on top of databases, and Oracle, headquartered in Redwood Shores, Calif., makes business management and database software.

Oracle’s bid represented a 25% premium over BEA’s closing stock price Thursday.

“It is apparent to our board. . . that BEA is worth substantially more to Oracle, to others and, importantly, to our shareholders than the price indicated,” William Klein, BEA’s vice president of business planning and development, wrote in the rejection letter.

In a response to BEA’s board, Oracle President Charles Phillips said he had contacted Klein to set up negotiations in hopes of sealing a deal by Monday. But BEA canceled a meeting scheduled for Friday morning, Phillips said, and then Klein told him BEA had little interest in pursuing discussions.

“We are available to proceed immediately with a process that would lead to a friendly transaction,” Phillips wrote. He reaffirmed the $17-a-share offer, “provided that the BEA board and management team do not institute any measures which reduce the value of the company.”

Industry analysts believe that BEA might be able to escape Oracle’s clutches by finding a white knight.

Activist investor Carl Icahn, who is using his 13.2% stake in BEA to push for a sale, sent a letter Friday to BEA Chairman Alfred Chuang supporting the board’s decision to spurn Oracle’s offer.

Icahn urged BEA either to put itself on the auction block or to negotiate an alternative deal at a “compelling” price.

SAP, IBM and Hewlett-Packard Co. are considered the most probable candidates to vie for BEA.

“There should be competition for this one,” Forrester Research analyst Ray Wang predicted. “IBM and HP need BEA a whole lot more than Oracle does.”

SAP, IBM and HP all declined to comment.

BEA shares soared above Oracle’s bid Friday, reflecting investors’ expectations that other suitors will emerge or that Oracle will sweeten its offer. The stock rose $5.20, or 38%, to $18.82 on Friday after reaching a 52-week high of $18.94 earlier in the day.

BEA’s cold shoulder seems unlikely to deter Oracle, whose opportunistic and acquisitive chief executive, Larry Ellison, has shown that he doesn’t back off easily once he is on the takeover prowl.

In 2003, Oracle launched a hostile bid for PeopleSoft Inc. and then spent the next 18 months overcoming its rival’s staunch resistance before completing the $11.1-billion acquisition at $10.50 a share, 66% above Oracle’s original offer.

That deal began a shopping spree at Oracle designed to create a one-stop shop for business applications software and better position the company to surpass Germany-based SAP in the sales of software that automates a wide range of administrative tasks for businesses. Oracle has spent $25 billion on 30 acquisitions in the last three years.