Updated from 3:33 p.m. EDT

SAN FRANCISCO -- After years of waiting for a BEA Systems ( BEAS) acquisition, the Street may finally get one.

But investors don't seem sure the company has found its best offer.

Oracle ( ORCL) gave BEA Systems a great big bear hug Friday by going public with background discussions the two companies were having on a possible merger.

But while Oracle's $17-a-share bid finally puts the middleware company in play, a deal is far from wrapped up.

"It is apparent to our Board ... that BEA is worth substantially more to Oracle, to others and, importantly, to our shareholders than the price indicated in your letter," the board stated in a Thursday letter sent to Oracle. BEA made the letter public on Friday after Oracle's offer announcement.

Traders apparently agree, bidding the stock up well beyond Oracle's offer price; the stock closed up nearly 40% to $18.82.

Speculation of a bidding war for San Jose, Calif.-based BEA has been running rampant, with IBM ( IBM), Hewlett-Packard ( HPQ) and SAP ( SAP) viewed as possible rivals.

But obstacles in front each of those companies makes it more likely that Redwood City, Calif.-based Oracle will ultimately prevail.

The idea that HP would bid for BEA would be "a shock," says IDC's HP analyst Stephen Elliott. "The middleware layer hasn't been a focal point for them. Middleware would be out in left field," for the server maker.

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), 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."

Oracle's bid is largely about acquiring customers and maintenance revenue. BEA has more than 15,000 customers. And while there is considerable customer overlap with BEA already, Oracle intends to sell its own products into BEA's customer base, according to Holt.

Oracle would also be acquiring BEA's engineering talent, Sholler notes. "BEA has had a longstanding reputation for having high quality products and engineers who've built those products." The acquisition would give Oracle access to a large "pool of talent."

Oracle's bid also puts smaller independent middleware suppliers in play, because "someone has just said BEA's worth $6 billion," Sholler says. Suppliers Tibco Software ( TIBX), Software AG and Fujitsu's software division are all likely candidates for further consolidation. "They all have middleware components that are competitive with BEA's."

Tibco closed up 13.4% to $8.77. Oracle finished down 2 cents to $22.44.

Oracle and BEA each have 10% to 12% of the worldwide market for middleware, compared with about 30% for IBM, according to Citigroup analyst Brent Thill. Oracle is an investment banking client of Citigroup.

A shortage of qualified engineers has beset Silicon Valley this year, and Oracle has had some of the biggest demand for development staff to keep rolling out products.

"While a BEA deal doesn't help Oracle's organic license growth in the medium term, it does provide the company with a stable and high-growth maintenance revenue stream," Holt wrote.

He stated the $17-a-share bid was reasonable and in line with multiples for preceding deals Oracle has done with companies such as PeopleSoft and Siebel.

BEA didn't return calls seeking comment.

Oracle's Fusion middleware is not perceived as a solid competitor to comparable software from BEA, IBM, Tibco or Software AG's webMethods, Bart Narter, senior analyst with consulting firm Celent, said in a statement. BEA's products could replace Oracle's offerings in this arena to give it a level playing field with regard to service-oriented architecture.

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