Update: Oracle offers $6.7 billion to buy BEA Systems

BEA has called Oracle's offer too low, raising the possibly of a lengthy battle like the one Oracle waged for PeopleSoft

Oracle announced on Friday that it has offered to buy middleware vendor BEA Systems for $17 per share in cash.

[ Update: BEA calls Oracle's offer too low | Bid turns unfriendly | Analysis: Bidding war coming? | Oracle, BEA product overlaps pondered  | Special Report: Oracle's BEA bid: A big deal ]

Oracle said it had written to BEA's board of directors on Tuesday to make the offer, which represents a premium of 25 percent over BEA's closing share price on Thursday. The Wall Street Journal valued the offer at $6.66 billion.

BEA was a pioneer in the market for Java application server software used to deploy and manage business applications, competing with products like IBM Corp.'s WebSphere. It has been rumored to be an acquisition target on numerous occasions but managed to retain its independence.

"This proposal is the culmination of repeated conversations with BEA's management over the last several years," Oracle President Charles Phillips said in Friday's statement. "We look forward to completing a friendly transaction as soon as possible."

BEA executives were not quoted in the statement, however, and there was no indication early Friday as to whether the company was open to being acquired. That raises the possibility of a lengthy takeover battle like the one Oracle waged to buy PeopleSoft a few years ago.

Oracle said buying BEA would help it to beef up its own middleware suite, an important area for the company that is serving to link several families of business applications that it has acquired. Oracle said it would protect the investments of BEA customers if the deal were to go ahead.

"Our continuing support commitment has been amply demonstrated with all of our previous acquisitions, including PeopleSoft and Siebel. BEA will be no different," Phillips said.

Oracle's Fusion middleware already includes many of the products BEA sells, including an application server, portal server and development tools, meaning the acquisition would create considerable overlap.

Stephen O'Grady, principal analyst with RedMonk, said Oracle's primary motive is likely the expansion and solidification of its presence in the middleware market.

"For all that BEA is not at the heights that it once was, it still owns solid accounts across global enterprises, and while Oracle obviously isn't lacking for presence in those accounts, BEA's middleware is often more highly regarded," O'Grady said.

BEA was an early leader in applications servers but saw its lead whittled down gradually by IBM and later by Oracle, which built up a strong middleware business itself. Oracle CEO Larry Ellison often liked to predict BEA's demise, but the company has managed to cling onto a respectable market share by developing new SOA and business process management technologies.

It has been under pressure of late, however, notably from the billionaire investor Carl Icahn, one of BEA's large shareholders. Icahn said last month that he would press for the sale of BEA, believing the business would find it hard to stay afloat as an independent company.

In August BEA reported total revenue for its second quarter of $365 million, up 7 percent from a year earlier, although revenue from new license sales, an important measure of growth for a software company, declined by 9 percent to $123 million. The company didn't report full figures for the quarter because of an ongoing investigation into its stock options grants.

BEA's shares on the Nasdaq closed at $13.62 on Thursday, down from a 52-week high of $16.77. In premarket trading Friday morning the shares had jumped 31 percent on the news of Oracle's offer, to $17.84. Oracle shares were fluctuating around their closing price Thursday of $22.46.

The deal would mark yet another big acquisition for Oracle, which is on an unprecedented buying spree that has netted it more than 30 software companies in the past three years. They include the applications vendors PeopleSoft, Siebel, and JD Edwards, performance management vendor Hyperion, and database vendors TimesTen and Innobase.

Ellison has said the acquisitions are designed to win the company new customers and increase its economies of scale so that it can invest heavily to become a leader in the applications market.

The deals have catapulted Oracle into second place behind SAP in the business applications market, although analysts question how Oracle can manage so many different product lines and integrate them under one roof.

Oracle indicated earlier this year that it would ease off the blockbuster acquisitions while it integrated the other companies it has bought. However, Ellison has always seemed to covet BEA, and he may feel that the unrest caused by Icahn has given him a chance to act.

This story was updated on October 12, 2007.

Copyright © 2007 IDG Communications, Inc.