BEA: sometimes you get the bear and sometimes the bear gets you

BEA is playing a high-stakes poker game right now with Oracle and it appears, at the moment, that Oracle just called BEA’s bluff. Oracle’s $17 per share offer for BEA, a premium of 21% over the pre-offer market price, has expired. Instead of considering the offer and negotiating in good faith, BEA countered with a price tag of $21 per share, an outrageous 80% premium.

What could BEA have been thinking?

BEA’s executives must have been reading the speculation that a white knight would arrive on the scene and pay upwards of $20 per share. But, despite the notion that SAP or some other company “needs” BEA to survive, no such suitor has stepped forward. As it stands, BEA has foolishly overplayed its hand, and the stockholders will pay dearly for it.

Senior management needs to recognize that the software industry is evolving and in a way that spells extinction for a dinosaur like BEA. While BEA was one of the banner carriers for enterprise Java, with its WebLogic application server once being the must-have platform during the dot-com boom, that is no longer the world that we live in. Ignoring all other technologies, the Java landscape is much different today than it was 8 years ago. The emergence of high-quality open source products has presented viable low-cost alternatives to the highly priced platforms from BEA, IBM, and others. IBM has adapted by shifting its sales model to one where the services organization drives the sale of its technology. But, BEA does not have a strong enough services organization to make that model work. (True, Accenture and the other large consulting firms will drive some sales to BEA, but they will also drive sales to other vendors as well.)

BEA has fallen into the trap of thinking that its (arguably) superior technology would win the day. This was a fatal miscalculation on the same scale as Apple vs. Microsoft, Netscape vs. Internet Explorer, and Digital Equipment Corporation vs. IBM. Apple, Netscape and Digital were, like BEA, pioneers in their fields and held strong, commanding leads in their markets. But all failed to recognize when the sands were shifting beneath them and all ultimately suffered greatly.

So, what should BEA learn from these past failures and from their own travails recently? First, things change and things change quickly. If you don’t act just as quickly to preserve yourself, you can find yourself irrelevant in no time at all. Second, 21% is a pretty darn good premium for a company with a declining market share, struggling with an outdated business model. Third, the wisdom of crowds. There is never any “secret information” that you can keep from being leaked that would give your company an 80% boost in valuation over what the market says. And, even if there were, why wasn’t management pushing full throttle to “pre-announce” an action and realize some of that gain sooner rather than later?

So now we’re left to wonder if another suitor will step forward to save this damsel in distress or if the evil dragon will escape with the prize at a discount? This is the time when the board of directors needs to do their job. Dean O. Morton needs to call up his buddies at his former employer, HP, and get them to make a $17 per share offer. The longer this ordeal lingers without some public offer, the worse it’ll get for BEA stockholders.

Yes, BEA, sometimes you get the bear and sometimes the bear gets you.