BEA Says It Will Accept Oracle Deal _ at $21 a Share

Oct 25, 09:10 PM

Current Headlines: SAN JOSE, Calif. _ BEA Systems named its selling price Thursday _ $21 a share or about $8.23 billion _ increasing the odds that it will soon be owned by Oracle or another buyer.

Oracle had no comment, but the development seemed likely to break the logjam that had stalled negotiations between BEA and the Redwood City, Calif., software giant.

The price is in line with what some analysts said Oracle, which is BEA's only known suitor, could afford and what the San Jose business systems "middleware" maker is worth.

It could also draw bids from Hewlett-Packard or IBM, analysts said, though no other bidder has surfaced publicly.

Oracle is offering $17 a share or nearly $6.7 billion, which BEA has rejected. Oracle drew a line in the sand Tuesday, giving BEA's directors until Sunday at 5 p.m. to accept or the offer would expire. Whether that deadline still holds could not be determined.

The ultimatum seemed intended to force BEA to set a price so negotiations could begin. BEA acknowledged Thursday that Oracle had been pressuring it to name a price.

The development represents the first real movement since Oracle made an unsolicited offer Oct. 9 to buy the company.

Shares of BEA momentarily topped $18 in early trading Thursday morning, but ended the day at $17.53.

In statement released Thursday morning, BEA's board said it was ready to deliver a draft merger agreement that it is prepared to sign at $21 a share.

The statement added that Oracle's lower offer "significantly undervalues BEA, and is therefore not in the best interests of BEA shareholders." The board said it will "continue to vigorously oppose a sale to Oracle at $17.00 per share."

Noting that Oracle "has repeatedly asked us for the price at which we would be willing to begin negotiations," BEA's directors said that they consulted with their financial adviser Goldman Sachs before coming up with the offer to sell at $21 per share.

BEA said that with its technology and customer base, a buyer could expect an earnings boost that would justify paying even more than $21 a share.

Oracle President Charles Phillips has called Oracle's original offer "generous." He said in a letter to BEA that it represents a 21 percent premium above BEA's closing price the day before Oracle's offer, which it made confidentially on Oct. 9. Phillips said it also represents a 31.5 percent premium above BEA's 52-week average before the proposal, and a price higher than BEA's five-year high prior to the offer.

BEA has been under pressure to sell from activist investor Carl Icahn, who has become the company's major shareholder, owning more than 13 percent of its shares. In September, when Icahn increased his holdings to more than 8 percent, he said that BEA's board should consider selling the company.

Icahn did not respond to a request for comment Tuesday.

Analysts said Oracle's CEO Larry Ellison could afford $21 but might think it's too much to pay for the company. "Is Larry Ellison going to pony up? I don't think anyone knows," said Pat Walravens of JMP Securities.

Deutsche Bank set a price target of $21 a share on BEA a week ago, saying the company is "a natural fit for Oracle" and that IBM and Sun were less likely bidders.

Ellison "can't afford to walk away from BEA," said Trip Chowdhry of Global Equities Research, adding that it's "100 percent likely" that BEA will be sold.

Oracle would gain a competitive edge on SAP and IBM with the acquisition and could use BEA's product offerings in "social computing" to develop Facebook-like applications for business over the next few years, Chowdhry said.

Compared to BEA's $13.62 share price the day before Oracle revealed that it had made the offer, $21 a share is a huge premium, said Dave Novosel, an analyst with Gimme Credit, an independent research company.

"This says clearly we're willing to deal at this level, and maybe at some level lower than this," Novosel said. "That's where the negotiation starts with Oracle or another suitor _ Hewlett-Packard or IBM."

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