DealZone

BEA takes gamble, shoots for $21

October 25, 2007

You can’t put a price tag on love, but apparently you can put a price tag on BEA Systems.

In an unusual move, BEA Systems on Thursday told its unsolicited suitor Oracle Corp. that it would be open to a merger offer of $21 per share.

BEA had previously relied on the defense tactic most often used by unwilling targets by saying that Oracle’s $17 per share “undervalued” the company, without giving any indication of what number would be more palatable.

“It’s very unusual for a selling firm to identify a price which would be sufficient to close the transaction,” said Allen Michel, a professor of finance and economics at Boston University’s School of Management. “It would not necessarily open themselves up to lawsuits, since a third party could still offer more and presumably the BEA board would entertain such a higher offer.”

Yet, declaring a value could be a risky move since it essentially puts a limit on the amount a company could get, said one investment banker.

“You’ve basically shown your cards very early in the game,” the banker said. “Why would you set a limit?”

BEA said it had set a “value position” because Oracle had “repeatedly asked us for the price at which we would be willing to begin negotiations.”

“Once you say you’re open to $21 per share, it’s going to be hard to say later that it’s an inadequate number,” said Columbia University Law School professor John Coffee.

“You have ended your ability to resist a deal. It’s a strategy aimed at maximizing value, not a scorched-Earth strategy of resisting a takeover entirely,” Coffee said.

Investors apparently didn’t take the $21 per share price tag that seriously since BEA’s stock barely moved on the news. Shares of BEA closed at $17.53, down 2 cents, on Nasdaq.

“BEA’s price is still above the offer price. So, that’s a sign people expect the bid to rise. But the stock didn’t move much, so arbs don’t think $21 is a price Oracle can justify,” Coffee said.

Oracle declined to comment. Oracle, the world’s third-largest software maker, had set a Sunday deadline for its $6.7 billion bid for BEA.

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