October 29, 2007 7:13 AM PDT

Oracle pulls buyout offer for BEA Systems

Oracle on Sunday pulled its $6.7 billion buyout offer for BEA Systems, after the middleware maker refused to entertain its $17-a-share bid before a deadline expired.

Oracle's action was largely anticipated, given the line in the sand the parties drew Friday. In a statement, after Oracle's 5 p.m. PDT Sunday deadline passed, Oracle said BEA shareholders should not assume Oracle will renew its $17-a-share offer in the future.

"Over the last 20 days the BEA board has repeatedly rejected our offer and refused to meet with us, even though we offered to meet without any preconditions. We asked the BEA board to allow their shareholders to vote on our $17-per-share proposal. They chose not to. If the BEA shareholders are unhappy with the behavior of the BEA board it is up to those shareholders, not Oracle, to take the appropriate action," Oracle said in a statement.

That message is not lost on BEA's largest shareholder, Carl Icahn. Before the deadline had passed, Icahn on Friday was gearing up for a potential standoff with the company.

The billionaire investor and shareholder activist, who initially agreed with BEA's board that the middleware enterprise software maker was more valuable than Oracle's offer of $17 a share, reiterated his demands that BEA let shareholders vote on the highest bid by any suitor. Otherwise, Icahn warned, a potential lawsuit and proxy fight may be on the near horizon, according to a letter he sent to BEA directors on Friday.

"I am sure that the BEA board would agree with me that it would be desirable not to have to put BEA through a disruptive proxy fight, a possible consent solicitation, and a lawsuit," according to Icahn's letter to BEA's board.

The investor goes on to note that such actions could be avoided if BEA's board were to agree to let shareholders accept or reject the proposal from the highest bidder. Oracle was the only bidder that came forward publicly with an offer before the Sunday deadline.

"Your recent press releases regarding Oracle's proposal to acquire BEA indicate to me that you intend to find ways to derail a sale and maintain your control of the company," Icahn said in his letter. "In particular I view your public declaration of a $21-per-share 'take it or leave it' price as a management entrenchment tactic, not a negotiating technique."

Icahn also called on BEA's board to avoid any steps that might upset a sale, such as selling new blocks of stock to friendly investors, prior to a shareholders meeting, or engaging in a strategic transaction that would "entrench" current management, according to a lawsuit filed by Icahn affiliates in the Delaware Chancery Court.

"Plaintiffs have reason to believe that the company is contemplating pursuing in the immediate future an illegal and inequitable scheme that could involve the sale of large blocks of stock to investors who were friendly to management," Icahn's lawsuit states. "Plaintiffs believe that such a plan would be designed to, and have the effect of, defeating any proxy contest."

The lawsuit also demanded that BEA hold an annual shareholders meeting by November 30. BEA has not held a shareholders meeting since July 2006, as it seeks to bring its financial reports current, following problems with stock options backdating.

BEA, however, has previously said Nasdaq granted it an extension until November 14 to file its delinquent financial reports. That would come roughly two weeks before Icahn's November 30 deadline for a shareholders vote.

One source familiar with the situation said that the Delaware Chancery Court will decide whether Icahn can hold a BEA shareholders meeting before the financial reports are filed, or if he would have to wait until the documents are filed.

BEA has 4 board seats out of 10 that are up for re-election in the next shareholders meeting, so Icahn would not have a majority vote, even if he launches a successful proxy fight. That said, Icahn has managed to swing boards around before, even when he represented a minority vote.

The source further noted that BEA is currently involved in preliminary buyout talks with several interested parties, but it isn't clear how serious the talks will become or whether the preliminary talks began after BEA set its price of $21 per share.

In response to Icahn's letter, BEA's board of directors on Monday issued an answer to the billionaire investor, noting that it would entertain a sale of the company--but not at a $17 share price.

"The board and management of BEA Systems are not opposed to an acquisition of the company. In fact, we are currently exploring ways to maximize shareholder value, including the possible sale of the company," BEA states in its letter.

BEA reiterated that it is willing to authorize negotiations to any party willing to pay $21 a share, adding: "It is important that there be no misunderstanding of the board's position. We are opposed to selling the company at $17 per share. We are not opposed to selling the company."

After the middleware software maker announced Friday that it would allow the deadline to pass if the offer remained at $17 a share, its stock closed below Oracle's offer price. Previously, it had been trading in the $18-per-share range during the three-week period that Oracle had its offer on the table.

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BEA Systems Inc., shareholder, Oracle Corp., deadline, Delaware Chancery Court

 

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