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October 12, 2007
Oracle Bids for BEA: The Software-less Software Industry
Today's Oracle bid for BEA qualifies as a semi-surprise. Many people thought that BEA would be in play eventually, but Oracle as buyer is somewhat of a surprise given the latter company's advancing middleware stack.
Nevertheless, today we have Oracle offering $17.00 in cash to buy BEA, a hefty 25% premium to BEA's Thursday close. The price is 26x 2008 earnings, but BEA's share price is already almost a dollar above the bid, suggesting that the market thinks this is not Oracle's last bid and that this may get competitive. A morning analysis I have here from Goldman Sachs pegs $20 as a price up to which Oracle could pay and still have the buy be accretive given cost savings.
Who else could pop up as a bidder here? Certainly HP, IBM, SAP, and even Microsoft. Each will have issues, however, with HP saying it doesn't want to play in middleware, SAP busy buying BOBJ, IBM seeing immense overlap with BEA, and Microsoft not prone to getting into these bidding adventures.
So, why the price premium? One guess is because Carl Icahn has a the largest block of BEA shares, and investors are figuring Icahn will want a larger than 25% premium to get off the dime, which is possible.
Going forward, it is fun to wonder where all of this is taking us and who else is in play -- or better yet, who isn't. You have to think most of mid- and large-cap tech is looking for a buyer right now, in particular Citrix, Cognos, Sybase, Salesforce, Tibco, Adobe, BMC, Red Hat and Computer Associates. The inevitable result will be the same: A software industry -- especially in business software -- with far fewer companies.
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The Software Magazine 500 issue came out this week and Oracle is less than 5% of its definition of industry revenues. So "consolidation" in the industry is overrated especially when software is broadly defined to include what SIs do around custom code, what Google and salesforce are delivering as services. There is so much new sw being written around mobility, virtualization, verticals, new global markets ....
Well, looks like the market - and BEA, of course - have spoken. $17 too low. It'll be interesting to see if Oracle would offer a higher bid or if there will be a bidding war of sorts.
bea at 26 times next years earnings and msft at 16 times next years earnings. what an intriguing disconnect!
Microsoft has broad and integrated middleware strategy based on Windows Communication Foundation which will be extended to all their middle-ware products. With the Connected Systems group, it is hard to see Microsoft buying BEA. I cannot see the synergies from a technology stand point. IBM again is deeply invested in Web Sphere. HP is not interested. That makes this very interesting.