Oracle Caves

Who cares if time was on Larry Ellison's side in his bid for BEA Systems (Nasdaq: BEAS  ) ? BEA won. Earlier today, Oracle (Nasdaq: ORCL  ) agreed to acquire the middleware maker for $8.5 billion, or $19.375 a share, in cash.

The irony here is that, in October, Oracle president Charles Phillips said that BEA had "become less relevant." Now, Phillips says that BEA is a "pioneer in middleware" and claims that the deal recognizes the company's success with customers.

Talk about an all-in bluff. Good call, BEA. This $8.5 billion pot is yours.

And yet there's truth to both of Phillips's statements. BEA, once a market leader in middleware, had less than one-third the share of IBM (NYSE: IBM  ) at the end of 2006.

Then again, without BEA, middleware -- tech-speak for software that connects systems that aren't built to work together -- might not be much of a market. It was BEA that popularized one of the first middleware platforms (TUXEDO) and whose application server (WebLogic) helped dozens of e-commerce businesses spring to life. Amazon (Nasdaq: AMZN  ) was a WebLogic customer, for example.

Now all of that expertise will be in Oracle's hands. It'll be combined with Oracle's own infrastructure technology and bundled into its products for managing common business functions -- from customer marketing to inventory management to financial reporting.

And it means a still-larger installed base. BEA claims to have more than 15,000 customers around the globe. Maintenance revenue -- that is, revenue from existing customers who've signed multi-year deals to receive upgrades, service, and support -- is rising rapidly and estimated to be at least $715 million.

That's where this deal makes sense. Like BEA, Oracle depends on its installed base to produce billions in maintenance revenue. The strategy works; Oracle has doubled its free cash flow output in less than 3 years. Having BEA's customers probably means more cash for Oracle's ongoing tussles with SAP (NYSE: SAP  ) and Microsoft (Nasdaq: MSFT  ) .

There's always a risk in speaking in absolutes in investing. Here, the truth may be that, with BEA -- and PeopleSoft, and Siebel, and Hyperion, and more than two dozen other acquired software firms -- Oracle has become the world's most important company when it comes to managing the software infrastructure needed to do business.

But that's just my take, and I own shares of Oracle. Do you disagree? Tell me so.

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