Fewer mega mergers expected after Oracle’s purchase of BEA

Oracle Corp.’s $8.5 billion purchase of middleware vendor BEA Systems is the last mega merger the IT industry will witness for a long time to come, technology analysts say.

The trend of independent tech firms disappearing into the folds of bigger companies will help users narrow down their middleware choices but might not benefit buyers seeking variety, said George Goodall, senior analyst for Info-Tech Research Group in London, Ont.

“This could be bad news for companies that don’t want to be tied to a single vendor,” he said.

The BEA board unanimously approved the transaction, which is expected to close by mid-2008 pending stockholder approval.

Middleware is software that functions as a conversion or translation layer. Middleware tools enable one application to communicate with another that either runs on a different operating system, comes from a different vendor or both.

According to Goodall, the Oracle-BEA deal is unlikely to trigger retaliatory moves from Oracle’s competitors. “There’s no company left to be snapped up. We’re likely to see much smaller deals from here on,” the analyst said.

Yesterday, Redwood Shores, Calif.-based Oracle announced its “definitive” agreement with BEA to acquire all outstanding shares of the middleware company for $19.375 per share in cash. The offer is valued at approximately $8.5 billion.

Last year BEA had rejected an earlier offer of $17 per share from Oracle.

BEA got a terrific price according to Josh Greenbaum, principal of Enterprise Applications Consulting in Berkeley, Calif.

“The BEA stock was overvalued in the first place. There was no other reason for it to be that high other than the outstanding offer from Oracle,” he said.

Greenbaum agrees with Goodall view that the middleware market is unlikely to see acquisitions of similar size in the near future.

Both analysts believe the middleware arena will now be controlled by big players, such as IBM, SAP, Microsoft and Oracle.

“Among the more notable alternatives is Red Hat which recently purchased JBoss, an open source vendor whose products overlap with BEA,” said Goodall.

He also speculated that BEA probably held off on accepting the initial Oracle offer “because BEA wanted something approximating the price Red Hat paid for JBoss.”

Overall, the current middleware landscape is beneficial for the customer, Greenbaum says.

He noted that over the years middleware products have become less strategic and more commoditized. “Middleware is no longer of high-end value for IT.”

“Consolidations are good for buyers because they don’t really need 15 or more vendors in this space. What they actually need is less choice,” Greenbaum added.

The BEA acquisition will enhance Oracle’s enterprise application offerings under the JD Edwards and PeopleSoft brands.

Customers have been clamouring for more integrated products and while Oracle’s Fusion middleware is good, BEA offers a better alternative, said Goodall.

“Oracle has been trying to stitch its offering together. The acquisition comes at an opportune time since Oracle is expected to release, this year, the next wave of Fusion apps for ERP (enterprise resource planning).”

Oracle and BEA were not available for interviews yesterday but in a press statement yesterday Oracle CEO Larry Ellison said BEA would extend the Fusion suite.

“Oracle Fusion middleware has an open ‘hot-pluggable’ architecture that allows customers the option of coupling BEA’s WebLogic Java Server to virtually all components of the Fusion suite…those products will gracefully interoperate and be supported for years to come,” he said.

BEA also needs this acquisition in order to continue growing. “The company has been in danger of being marginalized as Oracle and SAP continue to create competing products,” Goodall added.

BEA customers also stand to benefit from the deal, according to Greenbaum.

“Oracle has traditionally been good at keeping customers happy,” he said.

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