January 16th, 2008
We re-iterate that we see this transaction as 12-month accretive to Oracle’s earnings as numerous opportunities for economic rationalization and synergistic revenue generation are available to Oracle and BEA. Both companies are headquartered in Silicon Valley and both have numerous offices and sales forces in overlapping geographies. Oracle’s recent MGI Index scores confirm their execution capability as an efficient acquirer and integrator of enterprise software businesses. We expect Oracle to leverage the complementary sales opportunities that will be driven by the troika of business applications, database servers and now also applications servers. At the same time, the concern we expressed about the prospects for Oracle’s Fusion initiative have been reinforced by this acquisition.
Doubtless, the current turbulent equity market environment for tech stocks played a key role in accelerating a successful transaction. Carl Icahn’s advocacy for a pragmatic exit, together with BEA’s board realization that in the prevailing uncertain economic and market conditions, a combination with Oracle for cash is a smart business decision, were the other key factors in driving this deal. For BEA, the risk of staying independent has begun to outweigh the opportunity that a standalone company can harvest. As we mentioned in our analysis in October of 2007, Oracle did come back to the table with a price that was incrementally better than the initial $17 per share offer, yet below the $21/share “Maginot Line” established by BEA. Realism prevailed in this instance. In spite of a tightening credit, we expect to see a pick up in tech merger activity as cash-laden industry players step in to buy undermanaged, low MGI-Index companies that happen to have premiere products in their markets.