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.

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