BEA Rebuffs Oracle Again But Should Tread Carefully

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Includes: BEAS, ORCL
by: Larry Dignan

[Updated below] Oracle (NYSE:ORCL) said Tuesday that it sent a letter to BEA’s (BEAS) board of directors, urging them to accept the company’s $17 a share in cash offer or watch it expire by Oct. 28.

BEA has rejected Oracle’s proposal, which was outlined Oct. 9 (all Oracle-BEA content). Oracle is seeking that BEA put the acquisition proposal up for a shareholder vote.

Here’s the letter outlined by Oracle.

October 23, 2007

Board of Directors
BEA Systems, Inc.
2315 North First Street
San Jose, CA 95131

Dear Members of the Board of Directors:

Last night we were told by Bill Klein, Vice President-Business Planning and Development (speaking on behalf of the board), that BEA’s board again rejected our proposed price of $17 per share in cash. The board has refused to meet with us since we made our October 9th proposal.

Oracle urges the BEA board of directors to let BEA’s shareholders decide: sign an acquisition agreement with Oracle and allow the shareholders to vote. Oracle believes that our $17 per share price is generous and there are no offers for BEA above $17 per share. $17 per share represents:

– a 21% premium to BEA’s closing price of $14.05 on the date before we
made our proposal;
– a 31.5% premium to $12.93, the 52-week average before our proposal;
– a 44% premium to $11.77, BEA’s stock price on the date immediately
prior to the date that activist shareholders disclosed their position
in BEA; and
– a price higher than BEA’s 5-year high before our proposal.

Oracle has no interest in a long, drawn-out process to acquire BEA. If the BEA board refuses to execute an acquisition agreement and refuses to let their shareholders vote, then our $17 per share proposal to acquire BEA will expire at 5 p.m., PDT, on Sunday, October 28, 2007.

Sincerely,

ORACLE CORPORATION

/s/ Charles Phillips

Charles Phillips
President

My hunch is that Oracle will come up a bit on price and BEA will do the deal. BEA, however, needs to tread carefully. It’s not like folks are lining up to buy the middleware software business. If BEA remains independent for a few more years it will become roadkill as IBM (NYSE:IBM) and Oracle duke it out in middleware.

Update: BEA has responded. Here’s the response:

October 23, 2007

Charles Phillips
President
Oracle Corporation

VIA FACSIMILE

Dear Charles:

We are in receipt of your letter of October 23, 2007. As we have previously informed you, the BEA Systems Board of Directors is unanimous in its view that your unsolicited proposal to acquire BEA at $17 per share is not in the best interests of BEA shareholders. BEA is worth significantly more than $17 to Oracle, to others, and most importantly to BEA shareholders.

BEA’s Board and management are committed to creating value for
shareholders and regularly assess how best to accomplish this fundamental goal. Despite your statement that Oracle will withdraw its proposal, we simply cannot accept an offer that seriously undervalues BEA.

BEA’s Board has not indicated that it would be opposed to a transaction that appropriately reflects BEA’s value, reached through a reasonable process. To the contrary, the Board is keenly aware of its
fiduciary duties to shareholders and is acting accordingly. Indeed, BEA presented to Oracle standard and customary terms under which BEA would share information regarding a potential transaction, assuming
Oracle were to propose a reasonable price, but Oracle has rejected such a process.

If Oracle is genuinely interested in acquiring BEA, you are fully capable of proposing a reasonable price to the BEA Board or taking any offer you wish directly to BEA shareholders.

Sincerely,

William Klein
BEA Systems

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