The Quest For BEA

Oracle's latest prey, middleware kingpin BEA Systems, has temporarily eluded its grasp, but the widespread expectation among analysts and other industry observers is that it's only a matter of time before Oracle snaps up the rival vendor it's eyed for years.

The sticking point is price: Oracle's unsolicited offer was $17 per share, a 25 percent premium on BEA's closing price the day before Oracle's offer, for a total of around $6.6 billion. Long considered prime acquisition bait, BEA hoped for a bidding war, but no other vendor stepped in to counter Oracle's offer. BEA's board, with the help of financial advisers from Goldman Sachs, announced their own calculation of the company's value: $8.2 billion, or $21 per share.

With no other suitors in sight, Oracle opted to play hardball—a tactic it's used in the past on contentious deals. Oracle let its offer expire, and at Oracle's OpenWorld show in November, Oracle CEO Larry Ellison told financial analysts that any future bid for BEA would be made for less than the $17 Oracle previously offered.

But history suggests that once a backroom deal is successfully negotiated, Oracle will be willing to top its previous offer to take home a prized target. In its drawn-out fight to buy PeopleSoft, Oracle raised and lowered its bid several times, starting at $19.50 and jumping to $26 before Oracle announced that PeopleSoft was damaged goods and that its bid was being reduced to $21. When Oracle finally inked a deal to buy PeopleSoft, 18 months after its initial offer, the final price was—unsurprisingly—the highest Oracle had ever offered, at $26.50 a share.

Analysts expect BEA talks to follow a similar path, eventually settling on a compromise price both sides can live with. Citigroup's financial analysts dismissed Ellison's OpenWorld comments about offering less than $17 per share as "posturing" and called an Oracle takeover the highest-probability outcome for BEA. One way or another, Wall Street is very confident BEA will be bought.

For channel partners on both sides of the fence, that's likely the best outcome. BEA's channel efforts are nascent, while Oracle VARs praise the company's partner management. They also like the idea of getting access to BEA's middleware technology.

"Oracle has been talking about this acquisition for years. I've got to believe, at the end of the day, they'll work the pricing out and it will be an Oracle product," said Scott Jenkins, CEO of The EBS Group in Lenexa, Kan., a longtime Oracle partner.

Jenkins briefly also partnered with BEA but decided that staffing around two different vendors' products was more trouble than it was worth. He says he'd be delighted to work with BEA's products as part of Oracle's portfolio: "It would be really good news for Oracle's customers and partners. Middleware is where the bulk of Oracle's growth is occurring right now, and BEA technology would make their products stronger."