Business as usual: Users shouldn’t sweat an Oracle takeover of BEA
An Oracle acquisition of middleware provider BEA Systems should not have much impact on customers of either company. That’s the feeling among analysts who have watched Oracle gobble up more than 30 companies over the past few years.
“Software companies, including Oracle, don’t buy competitors to kill them anymore,” says Bill Swanton, a VP with Boston-based AMR Research . “They buy them to make money. And Oracle has figured out the way to make money when buying a competitor is to keep its customers happy.”
Oracle has indeed shown a knack for keeping customers happy following high-profile acquisitions of PeopleSoft and Siebel. Oracle’s strategy for staying in those customers’ good graces was simply continuing to support the solutions they had been using, and it has pledged to do the same for current BEA customers.
But that pledge alone may not be enough to close this deal. In fact, Oracle only made its $6.7-billion bid for the middleware supplier public after BEA management cancelled a meeting in which negotiations regarding the purchase were to begin.
According to several published reports, BEA management canceled the meeting because it believes Oracle’s offer, which amounts to $17 per share, is too low. In addition to making its offer public, Oracle, through a letter written by President Charles Phillips, said it is committed to its $17-per-share offer and is “available to proceed immediately with a process that would lead to a friendly transaction.”
BEA’s reluctance to accept Oracle’s offer sparks memories of the hostile battle Oracle eventually won when it acquired PeopleSoft in 2005. It’s unlikely this situation will reach that level of acrimony, partly because Oracle’s handling of recent acquisitions has softened the attitudes of technology users and investors toward the company. Also, Carl Ichan, a noted activist investor, is BEA’s largest shareholder, and he is pushing for the company to be taken over. There was no such figure involved in the Oracle-PeopleSoft deal.
Swanton says Ichan will want to draw other suitors into a bidding war for BEA, but that is not likely to happen because the companies deemed the most likely candidates to make offers— IBM , Hewlett-Packard , and SAP —all have good reasons not to buy BEA.
For SAP, in particular, Swanton says, buying BEA would be a drastic departure from its current business model. Until it announced a $6.7-billion bid for business intelligence software specialist Business Objects last week, SAP had maintained a strategy of acquiring only small companies while developing major pieces of functionality in-house.
But Swanton says buying BEA would be an even further departure from SAP’s strategy because BEA’s middleware platform, known as WebLogic, would not fit neatly into SAP’s product portfolio.
While both SAP and Oracle have marketed their own middleware platforms over the past several years, Swanton says SAP’s platform, known as NetWeaver, is designed primarily to support integration with SAP applications.
By contrast, Swanton says, the Oracle Fusion middleware stack is a more open platform that allows for easier integration with third-party applications. Thus, Swanton explains, Oracle would have an easier time blending the BEA WebLogic platform into its product line.
“Essentially, this points out the differences in how [Oracle and SAP] have always approached the market,” Swanton says. “Oracle, as a database company, has always tried to serve a broader technology market. It moved into applications as a way of adding a revenue base. SAP, on the other hand, started out in the applications business. It moved into the middleware market because it needed a technology stack to support its applications environment.”