Update: Oracle to buy BEA Systems for $8.5 billion

Oracle has agreed to buy BEA Systems for about $8.5 billion, or $19.375 per share, the companies announced.

BEA's board of directors turned down an initial offer from Oracle of $17 per BEA share in October, saying it "significantly undervalues BEA." Oracle in turn dismissed the BEA board's counteroffer of $21 per share as "impossibly high."

But on Wednesday, the companies split the difference.

"This deal is a very big step toward completing our vision of becoming the strategic enterprise software vendor of choice," Oracle CEO Larry Ellison said during a conference call Wednesday, apparently reading from a prepared statement. "Simply stated, this combination of BEA gets us where we need to be ... across the software stack, in more verticals and more regions across the world."

Both companies have "numerous" middleware offerings, but BEA's line is nonetheless "overwhelmingly complementary," Ellison said.

The deal will provide scale to Oracle's middleware business, and ultimately create "the leading platform for customers for to manage and deploy enterprise applications," he asserted.

Beyond technology, acquiring BEA will bring valuable human capital over to Oracle, according to Ellison: "Middleware requires a highly specialized, technically sophisticated sales force. In a very competitive market, it's difficult to find that kind of talent."

Most BEA customers are already Oracle customers, according to Ellison.

Oracle "plans to aggressively support BEA products in a manner similar to other acquisitions," he pledged.

BEA's chairman and CEO, Alfred Chuang, said that Oracle and BEA officials will be working on a comprehensive integration plan in the coming months.

"We recognize that a smooth and quick integration is essential to the success of the transaction," he said.

The executives did not take questions following the brief call.

"It's a good acquisition for Oracle and BEA," said James Kobielus, an analyst with Forrester Research. "BEA brings strength in some areas, like complex event processing. It's a strong platform for real-time business intelligence."

"There's also the fact that Oracle is very strong on data warehousing and batch ETL, while BEA is quite strong on data federation with AquaLogic. Oracle has data federation too, but BEA is more mature," he added.

The executives' promises about continued support for BEA's software rings true, according to Kobielus.

"If you look at Oracle's track record, they've done a good job of acquiring substantial brands, linking them into the Fusion middleware portfolio and then allowing them to continue steadily," he said. "Look at Hyperion. A lot of people said Oracle would discontinue Hyperion's BI, but clearly they haven't, and I don't see them doing so."

BEA's customers should watch and wait for a while, the analyst said.

"M&As don't change anything fundamentally when they are announced, or even when they are closed," he said. "It's only after the merged companies' CEOs get together and decide where they are going next, and these details start to become public, it's only then that CIOs should start to rethink their sourcing and partnering strategies."

BEA's products probably won't be rebranded for six to nine months, and two to three years of integration work will follow that, he predicted.

The companies expect to close the deal by mid-year, subject to the approval of regulators and BEA shareholders.

Oracle is financing the deal through a combination of cash and short-term credit, according to Ellison.

(Additional reporting by Peter Sayer in Paris.)