BEA for sale? Not likely

Carl Icahn wants to sell the company, but the investor lacks enough shares and not enough board members are up for election for such a sale to happen, an insider says

Talk about raining on a parade.

BEA Systems concluded its cheery BEAWorld San Francisco conference last Wednesday. Highlights of the seemingly triumphant event included presentations from executives like Chairman, CEO and President Alfred Chuang and product introductions like its new application server, WebLogic Server 10.3, and a dynamic application development platform called Project Genesis.

Then, two days later, well-known corporate activist and billionaire Carl Icahn, a BEA investor, expressed intentions to seek the sale of BEA, believing the company would have a hard time staying afloat as a standalone company in its industry. Icahn may seek to seat a board of directors more favorable to his plea.

But not so fast, a BEA insider said. While the company itself has continued to decline comment on the Icahn matter, this insider familiar with BEA's investor-related workings did not give out much hope for Icahn to get a more compliant board elected.

Icahn has an 8.5 percent stake in the company, which would represent about 33.5 million shares, said the source, who asked to not be identified. "But if you look closely at the filing, you'll see about 16.2 million of those are options, not actual holdings," the source said.

"He only owns about 4 percent," said the source.

"What this means is that if he was gong to exercise those options, he'd have to plunk down another several hundred million in cash right now," the source said.

Further complicating any efforts to force a sale is that BEA is one of several companies that has had to restate past financial statements due to backdating of stock options. With that issue still ongoing, the company cannot even hold an annual meeting where Icahn could attempt to elect a favorable board, according to the source.

An annual meeting is expected to be held this fall, but even then, BEA only elects three or four members of its 10-member board every year, the source said. Thus Icahn could not get control of the board in a single year.

Just publicly announcing plans to try to seek a sale of a company can drive up a stock price, the source said. BEA's stock went up 4 percent Friday, the source said.

Still, Icahn's setting sights on a software company like BEA, which has only intellectual property assets, "might be a sign of things to come for the tech world," said the source. 

Icahn has been involved in similar efforts with such companies as Motorola and Lear. Icahn could not be immediately reached on Monday afternoon.

BEA has been the target of takeover rumors before. One particular company that has stood out as a potential suitor has been Oracle. But BEA has continued to chug along independently although its license revenues in the most recent quarter shrunk 9 percent, to $123.1 million, over the same time period a year ago.

BEA also has plans to move into a new headquarters in downtown San Jose, Calif. next year, even getting a city subsidy to encourage the move. Whether that office building would bear the name of BEA, a prospective new parent company, or possibly remain empty remains to be seen.

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