BEA Bidding War Opens

HP has been focused on building out infrastructure software to manage applications by integrating its recent acquisitions in this area, rather than building a portfolio of middleware applications themselves, he says.

SAP, meanwhile, has effectively taken itself out of the game by announcing its intent to buy Business Objects(BOBJ Quote), thereby tying up cash it would need to make a counteroffer for BEA.

Unlike Oracle, which already has a software portfolio comparable to BEA's, SAP would have been interested in BEA for its technology, says Garnter analyst Dan Sholler. But integration with SAP's software would be a challenge.

As for a bid from IBM, "There's always a chance," Sholler says, but it seems unlikely given the potential for an antitrust inquiry if IBM were to prevail. IBM is already the largest provider of middleware software. The combined middleware business of Oracle and BEA would still be smaller than IBM's, he added.

"But this news could prove to be a catalyst for another bidder to emerge," JPMorgan analyst Adam Holt said in a note Friday. BEA and Oracle are investment banking clients of JPMorgan.

Oracle's bid was aided by activist investor Carl Icahn, who in recent months has taken a 13.22% stake in BEA and said he would urge the company to find a buyer.

According to Icahn's filing Thursday with the Securities and Exchange Commission, his funds have paid $663.82 million in total for 51.82 million shares of BEA, or $12.81 a share. At Oracle's offer price of $17, Icahn stands to make $217.1 million.

In a letter to BEA Systems later Friday, Icahn said he shares the company's view that Oracle's bid is too low. "BEA has great technology as well as great promise in SOA [service oriented architecture], virtualization and growth in the Chinese market, and would be of great strategic value to a synergistic acquirer," he stated.

But Icahn also maintained that to not eventually agree to some merger was a disservice. "Consolidation in the technology industry is leading to increased competition that may place independent software vendors at a competitive disadvantage," Icahn added. Attempting to remain independent could be "dangerous to shareholder value."

He suggested BEA use the momentum from Oracle's proposal to quickly sell the company in an auction process "to the highest credible bidder" or accept a preemptive bid at a "compelling valuation."