Billionaire investor Carl Icahn has increased his stake in BEA to 8.5% and urged the company’s board to put the business up for sale.
I once toyed with the idea of using the headline “BEAfraid, BE very Afraid”. I am glad I didn’t, and not just because it would have broken new ground in the naff pun stakes. Indeed, I only toyed with it very, very briefly.
But it seems that headline may be just as poignant today, for different reasons. Back then I was writing how BEA was firing on all cylinders, approaching the $1bn annual revenue figure faster than anyone, and beating all comers with its legacy Tuxedo ORB and more modern WebLogic and application server products. The competitors had reason to fear BEA.
Today, the firm has as much to be afraid of as its competitors. It has seen its new license sales go into decline, lost around 12% of its stock market value in the past year, and been adjudged by analysts to be losing share to IBM and Oracle in particular.
Perhaps it is little wonder then that Icahn, a renowned corporate raider, made his move.
“It is becoming increasingly difficult for a stand-alone technology company to prosper, especially in light of the very strong competitors in the area. It might almost be dangerous to continue to stand alone,” Icahn said in an interview quoted by Reuters.
Is Oracle not a standalone technology company, or SAP? Why is BEA, with application development, business process management, portal, SOA management, application server, transaction management and more in its portfolio, too niche to survive?
While BEA’s latest quarter was not, perhaps, stellar compared to some firms whose quarters have been buoyed by numerous acquisitions, it was nothing to be ashamed of. Second quarter total revenues were $364.6m, up 7% year on year. License fees were down 9%, it is true. But services were up 19% from a year ago, cash flow from operating activities was $61.4m, and the firm still has $1.1bn cash in the bank.
Don’t get me wrong: every public company can be bought for the right price and CEOs have a fiduciary duty to shareholders to consider serious bids for the company. But is it time to flog the company as if it has no other alternative, as Icahn seems to be suggesting?
Not in my view. SOA is only just climbing what Gartner Group calls the ‘Slope of Enlightenment’, and BEA is positioned to do well there. Its Fuego acquisition also gives it strength in the business process management (BPM) space, another sector with excellent growth potential.
The competitors may be a little less afraid of BEA than they once were. But they would be foolish to rule it out of the running altogether.
Still, as Icahn will surely have anticipated before he made his suggestion, his comments sent BEA’s stock up 4%, making him quite a few dollars on his 8.5% stake. When billionaire investors speak, the markets tend to listen. Let’s hope his words of ‘wisdom’ fall on deaf ears at BEA’s management though, because there are few enough serious contenders to fight Oracle, IBM and SAP in the middleware space as it is.
