Daily Archives: November 15, 2007

BEA Posts Earnings; Stalemate with Oracle Likely to Continue

BEA Systems posted its first earnings report in more than a year today. The company’s third-quarter results probably were better than many market analysts expected, though software-license sales were a bit weak. On the whole, however, BEA exceeded consensus estimates on revenue and earnings, and its guidance for the final quarter also surpassed expectations.

So, what does it mean in relation to the battle of attrition BEA is having with Oracle, its on-again, off-again, would-be hostile acquirer?

I don’t think the results, in and of themselves, will move the needle one way or the other. If Oracle wants BEA, it will have to offer more than $17 per share; if BEA wants to cut a deal with Oracle, it will have to lower its asking price from $21 per share. To get a mutually unsatisfying but practicable deal done, both sides will have to compromise and meet somewhere in the middle. Unfortunately, Larry Ellison cannot seem to find the word "compromise" in his personal lexicon.

The BEA board of directors might be stubborn, but one can’t say they haven’t studied the Oracle hostile-takeover playbook. In an Associated Press wire story released yesterday, I took particular notice of the following paragraphs:

With all the takeover talk unnerving its roughly 3,800 employees, BEA recently threw a financial security blanket over virtually its entire work force, according to Securities and Exchange Commission documents filed Wednesday.

BEA last week guaranteed severance packages that will provide three months to 12 months of pay to full-time and most part-time employees who are fired within a year after a takeover.

The severance protection conceivably could make BEA a less attractive takeover target by adding to an acquirer’s expenses after a sale is completed.

In reality, the severance protection is not intended as a veritable "poison pill." What it’s meant to do is prevent Oracle from using fear and intimidation as a means of frightening away BEA’s employees and dissuading its customers from doing further business with the company.

Students of Oracle’s bloody-minded pursuit of PeopleSoft will recall how Ellison and his takeover henchmen relentlessly turned the screws on PeopleSoft, creating sufficient uncertainty and doubt about the company’s future prospects to cause its talent to flee and its customers to defect. Kudos to BEA’s board members for anticipating Oracle’s moves and playing a smart chess game, even if it is one they might not be able to win unconditionally.

Ellison Tries to Talk Down BEA Stock

Oracle kingpin Larry Ellison told analysts yesterday that his company is no longer interested in buying BEA — at least not at an asking price of $17 per share or higher — and that Oracle would be more inclined to explore other acquisition alternatives.

Wearing his tough-guy persona like a comfortable shoe, Ellison sent a message that he would be playing hardball with BEA henceforth. The question, though, is how much of Ellison’s belligerence is posturing and how much is real? I’d say it’s a case of at least 90% posturing, probably more.

The fact are these: Oracle wants to buy BEA, and BEA’s board of directors is willing to approve a sale at a price it can countenance. It’s also true that BEA is unlikely to attract another serious bidder; there’s little chance of a white-knight scenario transpiring. What has to happen now is a meeting of the minds, and pocketbooks, between Oracle and BEA. Despite Ellison’s bluster, that’s likely to happen, with the deal eventually going down at a price between the $21 per share BEA wants and the $17 per share Oracle has offered.

As often is the case in the technology business, big egos are involved. Ellison’s ego is among the biggest in the industry. Sometimes reason loses out to megalomania. But don’t bet on it it this time. I would not be surprised to see a deal done for about $19 per share.