Friday, October 12, 2007

Oracle makes its move to acquire BEA

Someone had to pull the trigger, and few companies could better leverage and extend the value of BEA than now-public suitor Oracle. On Friday Oracle announced a bid of $17 per share in cash for BEA, a 25 percent premium over BEA's closing stock price on Thursday, or $6.6 billion, according to Reuters.

Speculation has swirled for years that BEA was going to have a tougher time remaining independent. But the circling buzzard moves by activist investor Carl Icahn put the pressure on those interested in BEA to move before Icahn managed to jack the price up -- or force something akin to a breakup, based on his growing clout in BEA as a large investor.

Based on its financial and market performance lately, Oracle is firing on all cylinders. The aggressive software giant has never been stronger, its finances flusher, nor its portfolio of offerings more broad and deep.

Oracle has quite successfully acquired, absorbed and leveraged large and complex acquisitions including Seibel, PeopleSoft, J.D. Edwards and Hyperion. Oracle should be very well positioned to merge BEA into the Redwood Shores, Calif. fold to fill out its infrastructure portfolio and -- crucially -- add SOA strengths to undergird its burgeoning applications business, while further exploiting the role and market depth of its extensive database installed base.

What's more, a combined Oracle and BEA offers a strategic bludgeon to all three of Oracle's main competitors -- IBM, SAP and Microsoft. At the same time, the Oracle and BEA mashup gives longtime rumored potential BEA acquirer HP a fascinating new partner for a greater depth of reach of IT solutions. Strategically aligned Oracle and HP helps reach parity with IBM, while besting SAP and Microsoft for strategic accounts penetration and retention.

HP can offer the channel, hardware, services, and client-side PC business that will complement both its strong existing partner Microsoft, and a BEA beefed-up Oracle -- a mighty powerful global enterprise market solutions alternative to IBM. Neither Microsoft nor SAP can ditch HP, even as it perhaps gets more cozy with Oracle/BEA. HP can be both neutral enough and aligned enough to play many would-be competitors as partners through the mutual need to provide a full solutions hedge to IBM.

And should Oracle succeed in acquiring and effectively absorbing BEA, the tectonic market shift may well push SAP into IBM's arms. Yet even a deeper IBM-SAP alliance could only go so far, as IBM will continue to leap up the SOA value ladder to provide more applications services as composited and increasingly verticalized business processes.

Thus the biggest loser in the Oracle-BEA conglomeration is SAP. The second big loser is Microsoft, which will be further isolated in its lack of an effective open source strategy, and boxed-in position trying to be Windows Everywhere in a loosely coupled world.

While I blogged just last week that Microsoft should buy BEA, the BEA-Oracle match up makes deep and abiding sense. I still think Microsoft needs to bite the bullet and expand its enterprise solutions purview across more platforms and frameworks while it pursues its gaming, search, consumer and mobile opportunities.

Other vendors will be significantly impacted by the proposed merger as well. Red Hat, Sun Microsystems, and TIBCO will face a tougher market. That's because Oracle will provide Linux and other open source value benefits (to blunt Red Hat's differentiation), provide deeper proprietary transactional performance characteristics (to etch away at TIBCO's differentiation), and offer one-stop shopping for a full and robust Java environment (to further demean Sun's purported Java advantages).

Sun -- a one-time Oracle collaborator wannabe -- looks especially disenfranchised in an IBM-Microsoft-Oracle/BEA world. Perhaps TIBCO and Sun may need to work together? One also has to wonder whether Apple and Oracle have more room to grow in terms of cooperation and complementary enterprise solutions.

The only thing that could upset the union is if other suitors enter the fray to try and wrest away BEA from Oracle. Icahn's influence will probably assure that BEA accepts, or at least doesn't doom, the Oracle acquisition. For those today mulling a potential counter-offer to Oracle, they must surely recall the tenacity and sure-footed way in which Oracle acquired PeopleSoft. Once Oracle has its teeth into a target, little seems likely to deter it from its intentions.

Indeed, the Oracle bid for BEA will be hard to undo. Once the merger is done, this combo shifts the landscape of enterprise IT solutions providers and provides a major new global second-source to IBM's resurgent clout, while elevating the fulcrum role of HP and potentially significantly weakening SAP and Microsoft in the long run.