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Oracle calms customers after $8.5 billion BEA purchase

Oracle and BEA assured customers that BEA's products will be supported after the completion of the $8.5B deal announced today, but some analysts report hearing rumblings from the BEA customer base.

Following today's announcement that Oracle Corp. is buying BEA Systems Inc. for $8.5 billion, top executives at both companies sought to reassure BEA customers that they will have full support throughout the acquisition process and beyond.

Oracle must confront the very real concerns of BEA customers that their investments are now 'legacy solutions' from the point of view of the acquiring vendor.
James Kobielus
Senior AnalystForrester Research Inc.

But the question hangs over the deal: Are the customers satisfied?

There is general agreement among analysts who cover the two vendors in the service-oriented architecture (SOA) space that Oracle has done a good job of integrating its acquisitions in the past. Even the PeopleSoft takeover, which was more contentious than the BEA deal, worked well for customers, analysts say.

Dana Gardner, principal analyst of Interarbor Solutions LLC., said: "I think both companies will take pains to assure the customers that they'll be taken care of. I don't think it makes sense for Oracle not to do that."

Gardner suggested that the fact that the two quarrelling companies have come to terms in making this deal may be a relief to customers.

"It was more difficult for customers being in a period of not knowing," Gardner said of the months since the initial October offer. "I think the limbo period was more difficult. Now that BEA customers know they are going to be with Oracle, a big company with a good track record of absorbing larger software companies the last several years, they're probably going to be okay with it."

However, other analysts said they were hearing concerns from BEA customers who worry about the long-term support for products such as WebLogic and AquaLogic.

Despite all the assurances and even Oracle's acknowledged track record for taking care of the customers from their acquisitions, Jason Bloomberg, senior analyst with ZapThink LLC. said he has heard rumblings to the contrary.

"The BEA customers we've spoken to about the Oracle deal express grave concerns about whether Oracle will support BEA's products moving forward in spite of the fact that Oracle has a relatively good reputation for migrating customers after acquisitions," he said. "So Oracle has more of a customer management challenge than a technical challenge to maintain relationships with BEA's customers."

In an email comment on the deal, James Kobielus, senior analyst with Forrester Research Inc., said he was finding some BEA customers fearing that their products will become legacy.

"In spite of its assurances to the contrary," Kobielus wrote, "Oracle must confront the very real concerns of BEA customers that their investments are now 'legacy solutions' from the point of view of the acquiring vendor. BEA customers everywhere are now developing contingency plans for the next two-to-three years, to determine their options for migrating away from BEA platforms and tools if--and this is a big if--Oracle does not evolve them at the same rate as its own Oracle-branded SOA offerings, and if (possibly when) Oracle begins to converge/migrate the BEA solutions into the Oracle SOA mothership."

At a teleconference this morning, Oracle CEO Larry Ellison said the purchase of BEA for $19.375 per share was a big step for his company, but would ultimately benefit the customers of both companies.

"The offer is valued at approximately $8.5 billion or $7.2 billion net of BEA's cash on hand of $1.3 billion," Ellison said.

Ellison stressed the financial strength of Oracle, not only to finance the purchase, but to provide greater research and development for both companies' products.

"We intend to finance the purchase with a combination of cash on hand and readily available short-term credit," Ellison said. "As you know last year Oracle generated $5.5 billion in cash flow, and ended this quarter with $8.4 billion in cash and securities."

Alfred Chuang, founder, chairman and CEO of BEA, who was thought to be resistant to the initial bid from Oracle this past October, stressed first of all the value of the deal to BEA's shareholders, but also sought to assure his customers. He stressed the success BEA had in raising Oracle's original $6.7 billion offer in October to today's final price of $8.5 billion.

"The board and I unanimously agree that this transaction is the best way to maximize value for all of our shareholders," Chuang said. "This transaction delivers a substantial premium offer our closing stock price yesterday and a significant premium over Oracle's initial offer in October."

With Ellison forecasting that with regulatory reviews, the acquisition is not expected to close until October 2008, Chuang assured his customers that BEA would continue to support them during the next 10 months "as always."

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Ellison pointed out that because of the heterogeneous nature of IT environments, BEA customers are not necessarily strangers to Oracle.

"Many of BEA's customers are already Oracle customers and run mission critical software from both companies," Ellison said. "Many of BEA's customers are already Oracle database or Fusion customers using complimentary middleware products from both firms."

The Oracle chairman also noted that the products of both companies are built around open standards assuring customers of choice and flexibility.

"The result is customers will be able to build applications to maximize their data center investment, make new investments in existing enterprise applications, manage existing Web based applications and develop new Web-based applications faster, all from a single strategic supplier," Ellison concluded.

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