Oracle to buy BEA for US$8.5 billion

Oracle has entered into a "definitive" agreement to buy leading middleware vendor BEA Systems for approximately US$8.5 billion, the two companies announced on Wednesday.

BEA's Board of Directors has unanimously approved the transaction, which is expected to close by mid-2008, "subject to BEA stockholder approval, certain regulatory approvals and customary closing conditions," Oracle said in a statement.

Oracle, the statement said would "acquire all outstanding shares of BEA for US$19.375 per share in cash."

Oracle has acquired more than 30 companies over the past three years, including leading enterprise software vendor PeopleSoft for more than US$10 billion.

As in the case of PeopleSoft, the BEA deal was fraught with controversy.

In fact, today's announcement ends months of uncertainty over whether the transaction would actually go through, and if so -- under what circumstances.

Oracle's initial US$6.6 billion bid to buy BEA Systems -- back in October -- was rejected by the BEA Board.

At the time BEA chairman and CEO Alfred Chuang opposed the sale of the company, while investor Carl Ichan -- who holds a significant share of the BEA stock -- supported it.

This led to speculation about a possible tussle between the company's leadership and its investors -- and as to whether the issue would drag on as long as the PeopleSoft deal did.

However, with Oracle upping its initial bid by approximately US$2 billion, the BEA leadership -- including Chuang -- has rethought its position and accepted Oracle's offer.

Chuang said over the past several months the BEA board, with the assistance of independent financial and legal advisors, reviewed various ways to maximize stockholder value.

This deal, he said, is "the culmination of that diligent and thoughtful process" and is "in the best interests of [BEA] shareholders."

One crucial question now relates to impact of the acquisition on Oracle's applications and middleware stack.

That, in fact, was a dominant theme at Oracle OpenWorld 2007 in November.

And it's a theme that includes several sub-issues, such as: how would an acquisition affect Oracle's existing middleware customers.

Oracle's leadership predicts the impact will be pervasive and very positive.

"The addition of BEA products and technology will significantly enhance and extend Oracle's Fusion middleware software suite," Oracle CEO Larry Ellison said in a statement.

He noted that Fusion middleware has an "open 'hot-pluggable' architecture that allows customers the option of coupling BEA's WebLogic Java Server to virtually all the components of the Fusion software suite."

He said customers would be able to choose among Oracle and BEA middleware products, "knowing that those products will gracefully interoperate and be supported for years to come."

At least one expert believes Oracle customers would easily be able to use the BEA products alongside their existing middleware tools.

While Oracle's existing middleware toolset is strong, there are many areas where there's no overlap with BEA products and others with low levels of overlap, notes

Ray Wang, principal analyst with Forrester Research, noted that in the transaction monitoring space BEA has Tuxedo, while Oracle doesn't have anything. Likewise, he said, BEA has a Java Virtual Machine (JRocket), while Oracle doesn't.

On the flip side, he said Oracle has middleware elements that BEA lacks -- such as business process modeling (BPM) suite, Business Rules and identity management tools.

His conclusion: a BEA acquisition would offer Oracle and BEA customers access to complementary sets of tools.

"It's also more likely than not that Oracle will continue with its existing apps strategy by supporting BEA in an Apps Unlimited or Middleware Unlimited program."

The transaction will also have a broader impact on the industry, suggests Oracle President Charles Phillips.

Oracle's BEA buy, he predicts, will accelerate the adoption of Java-based middleware technologies and SOA and "advance innovation in enterprise applications infrastructure software."He predicts the deal would also increase Oracle's penetration in key regions like China."