"We will not engage in any process that would be open-ended or harmful to our shareholders' interest," Klein stated. While Carl Icahn, a major investor in BEA, had urged the board to find a buyer, he took the software vendor's view that Oracle's offer is too low. In a call to Jim Cramer at CNBC on Friday, Icahn suggested Hewlett-Packard ( HPQ), IBM ( IBM) and other companies would also be interested. RBC Capital Markets analyst Thomas Curlin likewise said in a note Monday that he believes HP will enter the fray and has the ability to pay $9.5 billion in cash, or $25 a share. "We believe HP has the greatest strategic need of any of the large suite vendors," Curlin wrote, adding that a lack of other merger candidates to BEA's software suite will drive HP's sense of urgency. He raised his price target on BEA to $22. BEA is an investment banking client of RBC. BEA was recently off 45 cents, or 2.4%, to $18.37 midday. Oracle was down 23 cents, or 1%, to $22.21. Deutsche Bank reiterated its buy rating on BEA and raised its price target to $21 from $15. At least two other sell-side analysts lowered ratings on Monday. Citigroup analyst Brent Thill raised his price target to $20, but discounted the likelihood that IBM, SAP, Sun Microsystems ( JAVA) or EMC ( EMC) would enter a bidding war. "HPQ has publicly stated they are not interested, although a deal would make strategic sense," Thill wrote. Citigroup makes a market in BEA.
Bear Stearns analyst John DiFucci also lowered his rating to hold and said he does not expect Oracle to raise its price by much, "if at all." Oracle's pursuit of BEA is an attempt to gain market share in middleware -- software that links different applications -- as well as strengthen its middleware portfolio. But IDC analyst Michael Fauscette says he was surprised to discover that acquiring BEA would also give Oracle the edge in another software category. "It's an interesting move because in the application server market that makes
Oracle No. 1." IBM currently holds the lead in application server software, with 26% of the market. Oracle and BEA combined would have 38%, Fauscette says. Synergy potential is stronger with Oracle than its potential rivals, Fauscette said. "The verticals that BEA is strongest in ... map almost exactly to the verticals that Oracle's application business is strong in," such as financial services, manufacturing, retail, utilities, healthcare and government services, he says. Moreover, software offerings from the two companies in verticals tend to be complementary rather than overlapping. "It looks like they could bundle applications and middleware and take a larger part of the pocket share of each," Fauscette says. In its bid for "world domination," Oracle will likely acquire some small software vendors as it builds out its products for industry verticals, says Sheila Ennis, a principal with investment bank McNamee Lawrence. As companies add mobile access to their business software, securing the applications becomes a bigger issue. "We'll see more build-out of mobile in the Oracle offerings," including security functions, Ennis predicted.
With BEA in play and Business Objects ( BOBJ)
merging with SAP ( BOBJ), the biggest, most likely acquisition targets in software are effectively spoken for, she added. "But there's another layer of small companies about to become big companies," Ennis added. BEA began its pre-earnings "quiet period" Monday.