This fall, leaves will turn bright colors in New England, Americans will elect a new president and what Oracle Corp. plans to do with BEA Systems Inc. after the $8.5 billion acquisition closes may be clearer.
Until then little is certain beyond the "do-the-math" facts that BEA shareholders, led by investor Carl C. Icahn, will make money on the sale and Oracle, led by CEO Larry Ellison, expects to make money from BEA's continuing software licenses and sales.
At a teleconference to announce the deal on Wednesday, Ellison said Oracle expects BEA software sales and license fees to increase Oracle's earnings per share by one to two cents per share in the first 12 months after the deal closes. That apparently assumes that BEA revenues will be robust even if there is a U.S. economic recession.
Dana Gardner, principal analyst of Interarbor Solutions LLC., suggests that recession fears may have played a role in convincing a reluctant BEA board of directors to accept Oracle's offer, which amounted to $19.38 cents per share in cash for shares that closed Tuesday on the NASDAQ stock exchange at $15.58. With the stock markets closing lower almost every day, there may have been a sense that this was going to be as good as it would get perhaps for several years.
"Just fear of a recession has whacked tech stocks, so it would be harder for BEA to hold out for more from any buyer for next year or two," Gardner said. "Second, BEA needs to show strong growth in revenues, especially new licenses, to validate the higher price it was seeking. Next one or two quarters might not work out to prove that in a recessionary or fearful climate."
With no other buyer appearing interested and Oracle offering a cash price significantly higher than the recent share closing in a market spiraling downward, Icahn, who owned 13 percent of BEA shares may not have wanted to risk a prolonged holdout.
"So the recession or just fear of recession made BEA's notions of getting much more than Oracle was proposing less and less likely," Gardner said. "Plus, we can assume that activist investor Carl Icahn also saw the writing on the wall for tougher times and probably put added pressure to sell when an Oracle deal was possible."
Can these two SOA platforms get along?
Moving beyond the hard numbers on investors' spreadsheets, the question of what this deal means in terms of melding Oracle and BEA software into a rationalized SOA product line is much less clear. Their product offerings overlap in many key areas.
Ellison gave a general outline of how he thought the two company's products would work together to become a market leader. Analysts and competitors have differing ideas.
As the Oracle CEO explained it at the teleconference announcing the deal on Wednesday, the two companies' adherence to Java standards would ease integration of what he characterized as complimentary product lines.
"The addition of BEA products and technology will significantly enhance and extend Oracle's Fusion middleware software suite," Ellison said. "Oracle Fusion middleware has an open hot-pluggable architecture that allows customers the option of coupling BEA's WebLogic Java Server to virtually all the components of the Fusion software suite. That's just one example of how customers can choose among Oracle and BEA middleware products, knowing that those products will gracefully interoperate and be supported for years to come."
In a note written immediately after the deal was announced, James Kobielus senior analyst, Forrester Research Inc., said that there were complimentary strengths between the Oracle and BEA products.
"Though direct competitors in their core SOA/Java solution families," Kobielus wrote, "Oracle and BEA have complementary strengths and emphases that promise considerable synergies for their customers. Oracle has solution depth and breadth in packaged applications, database management systems (DBMS), data warehousing (DW), extract transform load (ETL), business intelligence (BI), and corporate performance management (CPM). BEA, in turn, has considerable depth in emerging areas such as complex event processing (CEP), enterprise information integration (EII), data federation, and the Web 2.0 "mashup" style of composite application development."
While not doubting Oracle's interest in WebLogic, Jason Bloomberg, senior analyst with ZapThink LLC., said the fate of BEA's AquaLogic SOA product line is not so clear.
"We see this deal more about WebLogic than AquaLogic -- that is, more about BEA's J2EE offering and customers than their SOA story," Bloomberg said. "As the Oracle Fusion story shapes up, it has become a stronger SOA story than AquaLogic ever was, so the addition of BEA will provide only marginal benefit there. But in the J2EE space, Oracle has lagged behind BEA for years, so the combined company will be better able to take on IBM in that part of the market."
In terms of competitive advantage, Ellison mentioned IBM and Sun Microsystems Inc. as well as archrival SAP AG and even non-Java Microsoft in positioning the combined Oracle and BEA products as providing market superiority.
At one point in Wednesday's teleconference, Ellison said: "With this deal, we believe our open-standards-based technology stack will offer greater value to our customers than any alternative in the marketplace including those offered by Microsoft, IBM, SAP, Sun and the open-source vendors."
The rhetoric of this quote failed to impress Bloomberg.
"Ellison's quote is disingenuous on its face, because it would be expected that Oracle's products are more valuable to Oracle's customers than competitors' products, or those organizations wouldn't be Oracle's customers in the first place," the ZapThink analyst said. "But that doesn't mean that IBM's products aren't more valuable to IBM's customers or similarly with any other vendor's products."
Open source vendors emboldened
Companies lumped under the phrase "open-source vendors" were also less than impressed with Oracle's positioning albeit they have a competitive axe to grind.
Dave Rosenberg, CEO of MuleSource Inc., turned a jaundiced eye on the combination of the Oracle and BEA SOA products.
"The last thing customers need is two SOA stacks from one vendor," Rosenberg said. "I'm not convinced they needed a single SOA stack to begin with. Oracle has already said it will be 2009 before Fusion makes sense and this adds a huge amount of complexity as to what products customers should buy."
Far from having a competitive advantage over the open source vendors, the MuleSource CEO argued that the Oracle/BEA deal provides an opening for companies like his.
"This is great news for anyone who competes with BEA," Rosenberg declared. "The company has not had it's eye on the ball for months now and the fact that the software will swallowed up by the Oracle machine means there is a very real opportunity with their customer base."
Peter Zotto, CEO at Iona Technologies Inc., which has moved from its original Common Object Request Broker Architecture (CORBA) roots to champion open source SOA projects in Apache and Eclipse, sees the BEA acquisition as the end of an era. In his view, service integration will no longer be dominated by large corporations, but will enter a new innovation cycle led by "the open-source vendors" of Ellison's quote.
Zotto sees Ellison's positioning against IBM, SAP, Sun and Microsoft as old school.
"Let me characterize the trend in the market segment that we're in, which is application integration or service integration," Zotto said. "If you think about trends in technology in a particular segment there is a period of time where there is innovation. Then there's standardization. Then ultimately, there's some consolidation. We're certainly seeing that in the middleware/integration space over the last couple years."
"What that signals is that we're coming to the end of the consolidation of those big heavyweight stack integration vendors," he said.
What follows the consolidation phase in this model of the technology cycle, according to Zotto, is the emergence of a new group of innovators.
"What we're seeing now is the end of the consolidation period and part of the innovation is coming from open source," Zotto said.
The role of open source raises another issue for Gardner. Alfred Chuang, chairman and CEO of BEA was skeptical of the value of open source, especially as some of the traditional vendors were entering it by open sourcing parts of software, but not entire product lines. Gardner wonders where Oracle will go in terms of open source and BEA.
"It will be interesting to see how much Oracle does in terms of open source with BEA," Gardner said. "Oracle has been aggressive in open source in some areas, BEA not so much. So I'll be interested to see if there is a new-found enthusiasm for open source within the BEA stack."
Next fall, after this deal goes down, there may be many things that are interesting to see.