(AP) SAN FRANCISCO - Notching another conquest in its push to create a one-stop shop for business software, Oracle Corp. is snapping up rival BEA Systems Inc. for $8.5 billion in a deal culminated after several months of acrimony.
The acquisition announced Wednesday extends a three-year spree in which Oracle has spent about $35 billion buying dozens of its smaller competitors.
San Jose-based BEA represents Oracle’s most expensive purchase since it paid $11.1 billion for PeopleSoft Inc. in early 2005. Part of Oracle’s expense will be offset by $1.3 billion in cash that it expects to inherit from BEA after the marriage is consummated later this year.
The all-cash price of $19.375 per share represents a 24 percent premium from BEA’s closing stock price Tuesday. It’s 42 percent improvement from where BEA’s shares stood before Oracle launched an unsolicited bid of $17 per share that was rebuffed almost three months ago.
Oracle’s dogged pursuit of BEA underscores how much it prizes BEA’s so-called "middleware" _ computer coding that helps business programs run more smoothly on underlying databases.
Already entrenched as the leader in the database market, Redwood Shores-based Oracle in recent years has been building up an array of business applications software to challenge the front-runner in that segment, Germany-based SAP.
BEA’s products, already used by about 15,000 customers, will give Oracle another potential selling point with companies looking for a suite of software from a single vendor in an effort to make their technology run more smoothly. Adding BEA also will help Oracle become a more formidable challenger to IBM Corp. in the middleware market.
"This combination with BEA gives us what we need _ a leadership position in every level of the software stack," Oracle Chief Executive Larry Ellison said in a conference call Wednesday.
Ellison had stalking BEA for years before finally pouncing in October, shortly after billionaire investor Carl Icahn acquired a large stake in BEA and began calling on its board to take steps to boost the company’s sagging stock.
But BEA spurned Ellison’s original offer of $6.7 billion and set its sale price at $21 per share _ a demand that Oracle ridiculed as unrealistic. BEA’s initial refusal to negotiate with Oracle infuriated Icahn, who threatened to lead a shareholder mutiny.
The impasse began a cat-and-mouse game, with Ellison publicly declaring Oracle was unlikely to raise its offer while BEA indicated it would either fetch a higher price from another suitor or attempt to boost its stock by accelerating its revenue growth.
The gamesmanship didn’t fool most analysts, who predicted all along that BEA would land in Oracle’s trophy case.
"It was only a matter of time," said Forrester Research analyst Mike Gilpin. "This looks like a good deal all around."
Oracle’s takeover, which is expected to be completed by October, might not bode well for many of BEA’s roughly 4,100 employees.
The combination will likely create an opportunity for Oracle to boost its profits by eliminating overlapping jobs in administrative, sales and marketing departments. Analysts think Oracle will try retain most of the engineers who develop and maintain BEA’s product line.
Without providing specifics, Ellison said Oracle will keep a significant number of BEA’s sales representatives. He didn’t mention other departments.
Oracle currently employs about 75,000 workers worldwide.
Selling to Oracle probably was a bitter pill for BEA Chairman Alfred Chuang, who co-founded the company in 1994 and whose first name represented one of the initials in the corporate name (the others are drawn from co-founders Bill Coleman and Ed Scott).
Chuang’s apparent disdain for Oracle probably "was a factor that played a role in delaying the sale," said AMR Research analyst Dennis Gaughan. "The original bid almost seemed like a personal affront to him."
Chuang, who is also BEA’s CEO, said the deal was in the best interest of the company’s shareholders.
The outcome pleased Icahn, who has accumulated a 13 percent stake in BEA. "This transaction is an excellent example of the great results that can be achieved for all constituencies when the shareholder activist is able to work cooperatively with management," he said.
BEA’s shares surged $2.88, or 18.5 percent, to finish at $18.46 Wednesday while Oracle shares added 61 cents to close at $21.92.
Oracle’s stock price has risen by 60 percent since 2004 as Ellison and his top lieutenants have overcome widespread skepticism about the company’s ability to keep customers happy while blending together all the disparate products that have been added from its vanquished rivals.
Delivering on Ellison’s promise, Oracle has become increasingly profitable _ a streak that has elevated Oracle’s market value by about $40 billion during the past three years.
"We have demonstrated over the many acquisitions that we have made in the past three years how expanding like this benefits both our customers and our shareholders," Ellison boasted Wednesday.
Gaughan, though, wonders whether Oracle eventually may push its luck too far. "Is there going to be a point where they have too many balls in the air at once?" he said.
Pacific Crest Securities analyst Brendan Barnicle doubts Oracle will bite off another big deal for the remainder of 2008 at least.
Other analysts disagreed, predicting Oracle might next try to buy software makers Informatica Corp., Tibco Software Inc. or i2 Technologies Inc.
Besides gaining access to BEA’s technology to promote future sales, Oracle is picking up about $850 million in annual revenue that BEA customers pay to maintain software installed in previous years.
Oracle expects the BEA acquisition to boost its annual earnings by one to two cents per share, excluding special items, during the first full year after the takeover is completed.
Through the first nine months of its current fiscal year, BEA had earned $132.5 million on revenue of $1.1 billion.
