BEA Systems in Fight With Icahn

Software Firm's No. 1 Investor Has Been Pushing for a Sale

SAN FRANCISCO, Oct. 29 -- After shooing away Oracle's $6.7 billion takeover bid, BEA Systems dug in its heels for a potentially disruptive battle with its largest shareholder, activist investor Carl C. Icahn.

In a letter sent to Icahn on Monday, the San Jose software maker's board of directors reiterated its willingness to sell for $21 per share, about $1.5 billion more than Oracle offered before retracting the bid late Sunday.

BEA's board hinted at talks with other suitors, assuring Icahn that "we are currently exploring ways to maximize shareholder value, including the possible sale of the company." Analysts have listed IBM and Hewlett-Packard as the two candidates besides Oracle that are most likely to try to buy BEA and its line of "middleware," which is coding that helps business software applications interact with databases. IBM and HP have declined to comment on the matter.

But Monday's letter didn't respond to Icahn's demands that BEA hold a public auction and then let shareholders decide whether any of the bids should be accepted. In a letter on Friday, Icahn threatened to wield his 13.2 percent stake in BEA to lead a shareholder rebellion aimed at ousting the company's directors unless the board budges from its $21-per-share asking price. Icahn did not respond Monday to a request for comment.

The rebuff of Oracle already had driven BEA's stock down from a recent five-year high of $18.94. The shares finished Monday unchanged, at $16.50.

By holding its ground, BEA now finds itself at odds with two billionaire investors, Icahn and Oracle chief executive Larry Ellison.

Icahn began pushing for a sale of BEA last month, shortly after divulging that he had accumulated a large stake in the slumping company. Ellison, who has been on the takeover prowl for three years, came to BEA nearly three weeks ago with an offer that represented a 25 percent premium above BEA's pre-bid stock price, $13.62.

BEA quickly rejected Oracle's bid as inadequate, an opinion that Icahn initially shared before lashing out at the board last week for not doing more to keep Oracle's offer on the table.

With BEA refusing to discuss any offer below $21 per share, Oracle retracted its $6.7 billion bid Sunday and warned that it might not be back. But many industry analysts said Oracle is just biding its time. Analysts have estimated that Oracle could pay $20 to $27 per share for BEA and still make money from the deal.

Ellison has argued that BEA isn't worth more than $6.7 billion because its sales have sagged and its books have been muddled by accounting problems caused by the mishandling of employee stock options.

For now, Oracle appears to be encouraging Icahn to try to remove BEA's directors. "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 after dropping its bid.