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Recurring Revenue: Article

ORACLE BEA - Round-Up of Early Responses

Here's What the Industry is Saying...

(October 12, 2007) - Dana Gardner says: 'Someone had to pull the trigger, and few companies could better leverage and extend the value of BEA than...Oracle.' Jeff Schneider says: 'It is interesting to look at the list of companies that [still] didn't get acquired...The odd balls include: Sybase, Tibco, Cognos, Adobe, Citrix, BMC, Red Hat and Computer Associates. In my opinion, these companies need to find a home - and soon.'

The industry is responding fast and furiously to the news that Oracle has pounced on BEA, which is hopes to acquire for just $6.6BN after eyeing it up ever since 2004.

Gardner continues:
"Speculation has swirled for years that BEA was going to have a tougher time remaining independent. But the circling buzzard moves by activist investor Carl Icahn put the pressure on those interested in BEA to move before Icahn managed to jack the price up -- or force something akin to a breakup, based on his growing clout in BEA as a large investor.

Based on its financial and market performance lately, Oracle is firing on all cylinders. The aggressive software giant has never been stronger, its finances flusher, nor its portfolio of offerings more broad and deep."

Om Malik comments on the profit that Carl Icahn will likely make: "He has 13% stake in BEA, which according to Dealbook cost him $663 million. That’s worth $871 million, if Oracle gets its way. Or a whopping $208 million in profit for Icahn in less than a month. Now that’s a good life!"

Analyst Eric Savitz notes that the fat lady is certainly not singing yet:
"The market has concluded that this is simply the first offer; in pre-market trading, BEA shares are up $4.65 at $18.27. Oracle is down 3 cents at $22.43. The fact that Oracle announced this bid publicly suggests that BEA might be resistant to the siren’s call of Larry’s cash.

But don’t think he’ll walk if they say no; I wonder if this is going to turn into a re-run of Oracle’s protracted battle to acquire PeopleSoft. Which of course they won, as they usually do."

And R "Ray" Wang agrees: "Oracle should expect a fight for BEA," he writes.

Wang continues:

"Other vendors like SAP, IBM, and HP need BEA more than Oracle does. SAP's NetWeaver is among the weakest of middleware platforms, despite one of the strongest ecosystems. IBM will be threatened by an Oracle dominanc e in middleware. HP could use this as an entry point to gain traction in the market. Oracle's potential acquisition takes away the last remaining independent major middleware platform provider leaving future competitors without a large install base and a third party player."

JDJ Editor Jason Bell says:

"It's certainly been acquisition season for Oracle: thirty companies in the last three years! The BEA bid certainly looks interesting for shareholders as Oracle are offering in the region of 25% over their current share value ($17 offering over the closing value of $13.62).

The effect on the developer community, well that remains to be seen. Though Oracle don't seem to be hanging about by any means, conversations have been going with BEA for a long long time but it looks like the agreement could be completed very quickly.

Getting BEA is the perfect jigsaw puzzle completed in terms of middleware."

Ronan Bradley speculates that the acquisition would mark: "The end of the J2EE era." He observes:
"I think if this bid is successful it does marks the end of the J2EE era. Not that I am suggesting that J2EE application servers are going to go away of course. Rather, the world has moved on from what created that market in the late nineties. At one end of the spectrum, the focus has moved back towards technology independent architectures with SOA (just as CORBA attempted to do in the pre-J2EE days - all be it by creating another set of technology). At the other end, lighter weight approaches such as Spring have superceded the heavier and more complex EJB model (which to be fair has also moved with the times but probably too late).

It is also worth noting that the disappearance of the large enterprise focused ISVs continues - in one week we appear to be losing another two. It is beginning to look like that the enterprise software market is heading for a strongly polarised world made up of a big-four (MS, Oracle, IBM and SAP) with a huge gap to the next division."

Kelley Flint notes that "Over the past several years, Oracle has been purchasing specialty software makers in an effort to better compete with Microsoft and SAP."

Jeff Nolan addressed the valuation of the deal:
"At $6.7BN the deal values BEA at 7x their trailing maintenance revenues, which is exactly in the sweet spot for practically every other deal they have done involving publicly traded companies. At a 25% premium over yesterday’s trade, many analysts are surprised by the richness of the offer, but it really just reflects that fact that BEA has been undervalued by the public markets on the basis of maintenance revenue alone."
He then considered the principal concern of almost everyone examinng the Oravle bid. Who else might join the fray?

"Will IBM, HP, or SAP step in?" Nolan asked. "SAP definitely not, they have their hands full with BOBJ and the idea that they would acquire BEA to integrate the middleware and platform technologies just goes against everything I know about that company. HP is an interesting potential acquirer but acquiring someone just because you can really isn’t a good enough reason and beyond that it is hard to imagine what HP would gain given the competitors they would instantly create out of their partners."

Nolan then continued:

"IBM is the most logical white knight but that company doesn’t have a track record for entering bidding wars over companies so it’s more likely they will stay on the sidelines. Besides, while the upsell would be good for investors it is hard to imagine a scenario where BEA comes out ahead by being buried inside Big Blue.

They just announced that Fusion apps will be delayed into 2009, this deprives them of a significant vehicle for pushing Fusion platform upgrade cycles (especially when coupled with the extended support agreements they were forced to make available in order to counter SAP’s claims that they were going to use maintenance to force upgrades). Maybe BEA is a wedge that helps them secure their base against competitors, given that the only rumored acquirer beyond Oracle was IBM."

Curt Monash returned to the matter later in the day and commented:
"What Oracle now needs to do is make Oracle Application Server be a seamless “upgrade” from Weblogic. Then they can integrate in whatever kitchen-sink stuff they want from Oracle data caching (already there), app and/or dev tool run times, TimesTen, Tangosol, and so on, creating an app server stack that’s a worthy counterpart to the Oracle database in how it meets high-end OLTP needs. Meanwhile, WebLogic should remain as a not-bloated app-server-for-the-rest-of-us. "
Retired JBoss founder Marc Fleury had his own characteristically insightful analysis of the bid:
"Truth be told, the combination just makes sense from most angles I can think of. Product wise, this acquisition probably puts Oracle as market leader in terms of marketshare by a comfortable margin. By consolidating BEA and ORA's market share they are leapfrogging both IBM's websphere and RedHat's JBoss.

From a financial standpoint, Oracle grows by executing correctly on their strategic acquisitions. They have a track record here, they deliver consistent 30% growth on a behemoth of a company by not screwing up what they buy.

From a operations standpoint, executing on this one is fairly straightforward for them. The sales models are the same, the business models are the same, pretty much everything but development can go, extracting immediate EBITDA anywhere from 30% to 60% depending on how far they want to cut it. In that sense, even though ORA stock is down 2% on the news, this one may make complete numbers sense."



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Most Recent Comments
Donald Hsu 10/16/07 08:15:08 AM EDT

Oracle bidding on BEA is a good thing for BEA. Why? Only the strong firm survives. What is next, SunMicrosystems. Oracle definitely should buy SUN. Oracle 10g and 11g are already written in Java. Sun stock symbol is JAVA. All good firms should join together. As for the stockholders of Sun, they will get $$$. For J. Schwartz and S. McKealy, they can cash out. I made this point two years ago on this server asking McNealy to step down and sold his firm to Oracle.

Long live Oracle, fighting against SAP...

Werner Keil 10/15/07 07:28:02 PM EDT

While it clearly looks appealing mostly for Oracle, they pretty much had to throw away large portions of their own not too succesful applications first.

On one end there is much they tried to squeeze into the database at all costs (such as a small, but decent App Server called Orion) making it almost impossible to scale both at the same time.

Then there is the tools selection, where such merger would clearly help and strenghten those at Oracle who already contribute to Eclipse, even if it is just Java Persistence or other parts of WebTools. Like IBM or (far less significant though) other vendors like SAP, too BEA was among the early adopters of the Eclipse Platform. Throwing all that away in favour of the JDeveloper IDE would be as if Larry Ellison sank his yacht for a wooden float, even if that might have grown much over the years, too.
And while both he and former Sun CEO Scott McNeally discussed an adoption of NetBeans for future releases, that is now the least plausible option. What a 'JDeveloper for Eclipse' (12, 13, or whatever they might call it?) could of course gain a lot from Oracle was if they added a strong UML tool similar to those offered by e.g. Rational/IBM or Borland. Not that I would wish those or other IDE and plugin vendors to be pushed out of the market by such a move, but having added this already users would hardly understand it not there in future versions.

I can't really say that much about HP. What BEA would of course give them is what JBoss has provided for Red Hat, even at a much smaller size so far.
Of course they may stick to the Hardware and OS supporting BEA, Oracle or a combination of both as partners.

IBM would profit little to nothing on the Tools front as they already use more or less the same bricks as BEA in the first place. And their share in both the Java EE market and Portals is clearly above those of Oracle in those 2 sectors. So while almost a monopoly there IBM would hardly gain much except keeping Oracle from growing stronger.

BEAlzabubb 10/12/07 02:22:51 PM EDT

The logic of an Oracle/BEA deal now in 2007 isn’t much different from what it was in 2002, 2003, 2004, 2005...

Stocks Surge 10/12/07 12:49:40 PM EDT

Stocks advanced Friday as the tech sector rebounded amid deal news, and a key data point indicated that inflation appears to be in check.

Bill Nichols, trader with Bear Stearns, credited deal action in the technology sector with giving a particular upward push to stocks in the session.

queZZtion 10/12/07 10:32:27 AM EDT

What is being said interally at BEA? Happy/sad/scared/exhilarated?

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