Intelligent Enterprise

Oracle's planned $8.5 billion acquisition of BEA Systems, disclosed Tuesday, would push the company to the forefront of the lucrative market for software that helps major corporations tie together key business processes while running highly connected computing operations.

Oracle, known mostly for its database software and the ERP systems it acquired from PeopleSoft, has on its own struggled to deliver a middleware platform for business process management and integrated, service-oriented architectures.

An ambitious internal project called Fusion that aims to develop such software has suffered numerous setbacks and delays since Oracle launched the effort in 2005.

The addition of BEA technology to Fusion should put the project back on track, analysts say.

"The fit of technology is very good," said Murray Beach, who follows Oracle for investment bank TM Capital, in a research report. "BEA's middleware products will help to make Oracle's Fusion products stronger."

Among other things, BEA will add to Oracle its WebLogic and AquaLogic SOA and BPM tools, as well as its Tuxedo transaction processing monitoring software. BEA's Java Virtual Machine technology also could push Oracle deeper into the hot market for virtualization software.

The deal would immediately increase Oracle's share of wallet from large enterprise software buyers such as Pfizer, DHL, Airbus, and Halliburton -- all current BEA customers.

Oracle said it does not plan to discontinue any BEA products as a result of the proposed acquisition and said BEA customers will be able to use their BEA software in a standalone fashion or as an integrated piece of Oracle's middleware suite.

"BEA customers can continue to use their existing BEA products going forward, or choose to use Oracle and BEA products as part of the ongoing evolution of Fusion Middleware," Oracle president Charles Phillips said in a letter to customers Tuesday.

Oracle also said it would continue development of versions of BEA products that run on databases other than those made by Oracle, such as IBM's DB2 database.

The merger could give Oracle an edge over rivals, including IBM. Big Blue's main entrant in the middleware market is a series of products grouped under a brand called WebSphere. SAP, meanwhile, pitches a middleware offering called NetWeaver.

"From a competitive standpoint, this deal will materially improve Oracle's position against IBM in the middleware/SOA space and will further extend its leadership over SAP," says Credit Suisse software analyst Jason Maynard.

IBM and SAP, however, aren't letting their own business software portfolios stagnate.

IBM on Tuesday said it had closed its $5 billion deal to acquire Cognos, a developer of business intelligence applications that help companies make better use of internal data. SAP in October announced a $6.8 billion takeover of business intelligence software vendor Business Objects.

Oracle strengthened its own BI offerings when it acquired Hyperion last year for $3.3 billion.

Oracle said it expects the deal to acquire BEA, which values the company at $19.38 per share, to close by mid-2008, pending regulatory approval. BEA shares were up almost 19% to $18.50 in midafternoon trading Tuesday, while Oracle shares were up about 3.5% to roughly $22.