BEA, Oracle maintain their silence on takeover offer

At least publicly, the two companies have been in a holding pattern about Oracle's unsolicited proposal to buy BEA

Given the silence from the BEA Systems and Oracle camps early this week about Oracle's unsolicited proposal to buy its middleware rival, the community at large can only sit back and guess what might be the next scene in this drama.

The two companies have been keeping quiet since last Friday's blockbuster revelation that Oracle was seeking to acquire BEA for $17 per share, or about $6.7 billion. Both have spurned requests this week for media briefings to elaborate on the issue.

Undoubtedly, much is taking place behind the scenes, as aggressive Oracle seeks to add BEA to the impressive list of formerly independent companies it has acquired, which has included, among others, PeopleSoft and Siebel Systems. BEA, meanwhile, also has to be pondering its next step.

Officials at Sun Microsystems, which invented the Java platform that serves as the backbone of many BEA and Oracle products, seemed to be caught off-guard when asked about the proposed merger at a Sun event in San Francisco on Wednesday evening.

Chuckling, Rich Green, Sun executive vice president of software, suggested contacting Oracle CEO Larry Ellison about the matter. But when asked what impacts might be felt by the Java platform itself, Green did not see any negative effects.

"They're both Java supporters," Green said. "I think it's neutral to Java. I think it's just fine."

Sun's James Gosling, a founder of Java and chief technology officer for Sun's client software group, concurred. "They're both big supporters of Java. I don't think it's going to have much effect one way or the other," Gosling said.

Oracle has pledged to protect investments customers have made in BEA products. While Oracle's move has been characterized in some circles as a hostile takeover attempt, BEA's initial response merely said the Oracle offer undervalued the company.

Major BEA stockholder Carl Icahn has been prodding for a sale of BEA, prompting one BEA insider to suggest Icahn did not have enough shares and would have a hard time getting control of the BEA board of directors in order to make the sale happen. Now, Oracle has forced BEA's hand. If history is any indication, the sale is likely to happen. PeopleSoft opposed Oracle but eventually succumbed.

"We certainly saw how persistent Oracle was in chasing PeopleSoft," said Dennis Callaghan, enterprise software analyst at the 451 Group, who expects the merger to be completed.

Options for BEA to resist Oracle may be limited. To take the company private and avoid a merger, BEA would need to find a private equity partner, Callaghan said. And then there is Icahn, owning a significant stake in the company and wanting the company sold.

"It's not like [BEA CEO and co-founder] Alfred Chuang can regain control of the company and take it private. He's got to make his shareholders happy," said Callaghan.

Even BEA employees could profit on a merger if they bought stock at a discounted price and then were able to sell it at an inflated price as a result of a merger, he said.  They might lose their jobs at BEA, but a lot of them would be very employable, winding up with startup ventures, he said.

Callaghan added he expects Oracle to increase its offer. HP is a possibility as another potential buyer for BEA, but HP has had troubles of its own integrating acquired companies, such as Peregrine and Bluestone Software, Callaghan said

He gave credence to the notion that Oracle may be buying BEA to stock up on its middleware offerings as the database market, which has been Oracle's cash cow, now features free, open source offerings from competitors.  "From what I understand, [databases is] not really a growing business at this point, Callaghan said.

A dignitary in the Java development space had a mostly positive reaction to the proposed merger.

"Oracle and BEA both have amazing engineering teams, but Oracle's business operation is clearly many, many times the size and scale of BEA's," said Rick Ross, founder of the Javalobby Web site for Java developers. Having both teams under the same umbrella would create great opportunities for innovation, Ross said. And BEA's technology, such as the JRockit Java Virtual Machine, could become more widely used, he said.

But there could be a down side, Ross noted.

"As the realized market share of a single player moves to such a dominant position, it becomes less and less likely that the startup innovator can gain a foothold," he said.

IBM, BEA, and Oracle are battling in what research firm IDC calls the application deployment software space, which is comprised of application servers, integration software, message-oriented middleware and transaction processing monitors. This market space, valued at $9.4 billion in 2006, is growing at nearly 18 percent year over year because of trends in integration, business process management, and SOA, said Maureen Fleming, IDC program director.

When including software mainframes, IBM last year had a 36 percent market share, valued at $3.3 billion. BEA trailed with 11 percent or $1 billion, and Oracle had 9 percent, or $850 million. The figures include license and maintenance revenues

When leaving out mainframe software, the market size dropped to $6.5 billion, with IBM still leading with a 20 percent market share, or $1.3 billion and Oracle garnering 13 percent or $850,000. BEA came in right behind Oracle with 12 percent or $840,000.

Copyright © 2007 IDG Communications, Inc.

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