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Issue Date: October 2007

AnalystWatch: Oracle offers $6,7bn for BEA

October 2007
Laurent Lachal, Ovum senior analyst

BEA was bound to be acquired sooner or later and Oracle has always been one of the best positioned to do so.

BEA was bound to be acquired sooner or later and Oracle has always been one of the best positioned to do so.
The timing of the acquisition is interesting. Oracle has waited to be in a position of strength before acquiring it. It has spent the past three years positioning itself aggressively against BEA on the basis of the integration between its database and application server, and an aggressive pricing strategy.
More recently, when stating its quarterly results, it repeatedly stated that it had not just caught up but overtaken BEA in the infrastructure space, partly because of acquisitions.
The decision to wait is costly. Had it acquired in 2004, as it was considering (revealed during the legal shenanigans that preceded its takeover of PeopleSoft), it would have picked up BEA's stock at its lowest, down at nearly $6 a share. It is now more than twice that amount.
In a piece on the recent acquisition of LogicalApps earlier this week Ovum speculated that this acquisition could signal a fourth phase of acquisition strategy.
Phase 1 was the acquisition of a substantial customer base, through purchase of assets like PeopleSoft and Siebel.
Phase 2 has seen Oracle building out its middleware strategy, filling in technology that needed to be enhanced.
Phase 3 has seen Oracle building industry footprints, through acquisitions such as iFlex Solutions, Retek, SPL World Group, Hotsip, Netsure Telecom, etc. LogicalApps is much more in the horizontal applications domain, and therefore quite different strategically. The acquisition of BEA would be a step back to phase one (customer base) and 2 (middleware strategy).
On one hand, BEA's results may not be stellar but the company has not done so badly in the past two years from a revenue as well as strategy point of view. It has both redefined itself around a 'liquid computing/assets' vision, backed by the new AquaLogic offering, and pulled itself together from an execution point of view.
Like 'liquid computing' when it was first launched in 2004, the company's new 'SOA 360B:' vision is mostly promises and plans rather than actual products. However, it does provide a roadmap of what BEA is going to do in the next two to five years. SOA 360B: turns BEA from a technology developer into a company whose value add centres on its ability to mix and match its own, and third party, software into complete solutions (and could help Oracle in its 'fusion' middleware endeavour).
On the other hand, BEA shareholders may now be open to an offer, especially if goaded by billionaire investor Carl Icahn, who recently increased his stake in BEA to 8,5% and asked for the company to be sold.
Oracle's claim that it will protect the investment may be one of the least contentious issues here. For a start, it is not in Oracle's interest to get customers to defect. But also, it can point to its record with PeopleSoft, where after a very contentious take-over that many customers opposed, Oracle has managed to hold onto and even in some cases enhance the user base for PeopleSoft products. Obviously, bringing the offer into the open does put a lot of pressure on BEA's board.
Source: Computergram


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