BOSTON.- Oracle Corp said on Friday it made an unsolicited $6.7 billion bid for software maker BEA Systems Inc, which has been under pressure from activist investor Carl Icahn to put itself up for sale.
BEA said the offer was too low. The company’s shares jumped as much as 33 percent to $18.15, more than $1 above Oracle’s offer of $17 per share.
“BEA is worth substantially more,” BEA’s board said in a letter to Oracle.
Icahn said he was glad Oracle made the bid, adding that he expected higher offers to emerge from Oracle rivals, naming International Business Machines Corp and Hewlett-Packard Co as potential bidders.
The industry has been consolidating over the past few years amid pressure to boost profit margins by cutting costs. Oracle, IBM and Hewlett-Packard have been among the most aggressive buyers.
When Icahn first disclosed that he had invested in BEA and called for the company to be put up for sale, he cited this trend and said the mid-sized software maker would never be able to generate the profit margins and returns for shareholders that bigger rivals could.
BEA sells software that helps business computer systems communicate with each other. It is called “middleware” because it works in between other types of software, sitting in the middle of computer systems.
Businesses use BEA software to control various tasks that manage the inner workings of large computer systems, including communications and program development. Its top rivals in that market are Microsoft Corp, IBM and Oracle.
Icahn has said BEA should be put up for sale because being part of a bigger software maker would allow it to squeeze significant costs out of BEA’s operations.
Katherine Egbert, an analyst with Jefferies & Co, said BEA was probably worth about $18 per share at the most and that its operating margins could double if Oracle bought it.
“They could probably fire everybody except the engineers,” she said. She estimates that the company’s current operating profit margin is about 22 percent to 23 percent.
BEA has not reported its operating profit margin since July 2006. The company has only released limited financial data since then as it reviews historical results for what it said were errors in its accounting of stock options grants. That led potential buyers to underestimate its value, it said.
BEA sells software called “middleware” that helps business computer systems communicate with each other.
Some investors have bet Icahn would fail to engineer a sale. About 21.6 million BEA shares, or 5.5 percent of the company’s outstanding shares, had been sold short as of the end of September, nearly a 65 percent increase from the middle of the month. People sell a stock short betting that the price of shares will decline.
Icahn said the offer from Oracle Chief Executive Larry Ellison means he probably will not have to wage a proxy battle against BEA’s board. He has said he would do so if it didn’t put the software maker up for sale.
“I think this will save a lot of … aggravation,” he said. “I think the best way to win the war is not to fight it.”
Analysts have long identified Oracle as one of the most likely suitors, saying BEA would give the world’s largest maker of database software technology that is missing from its portfolio.
Oracle confirmed on Friday that it has discussed a potential acquisition with BEA executives “over the last several years.”
Oracle’s offer for BEA represents what would be its biggest acquisition since it bought Siebel Systems for about $6 billion in January 2006. Earlier this year Oracle bought Hyperion Solutions for more than $3 billion.
The offer comes a week after German rival SAP offered 4.8 billion euros ($6.8 billion) for Business Objects, raising expectations for further consolidation in the software industry.
BEA said it was being advised by Goldman, Sachs & Co and Wachtell, Lipton, Rosen & Katz.