Icahn threatens proxy fight if BEA unsold

NEW YORK/BOSTON (Reuters) - Activist investor Carl Icahn threatened on Friday to launch a proxy battle for control of BEA Systems Inc BEAS.O if the software maker does not begin an auction process to sell itself.

He also demanded in a letter to the BEA board that it let shareholders vote on the best bid that emerges from an auction, including an existing $6.7 billion offer from Oracle Corp (ORCL.O) if it turned out to be the highest.

Icahn, BEA's biggest shareholder with about 15 percent of its stock, wrote to BEA's board two days before Oracle's $17-a-share bid was set to lapse. BEA has rejected the bid, saying it was worth $21 a share, or $8.2 billion.

"It's completely insane to lose a stalking horse," Icahn said in an interview with Reuters, referring to Oracle.

Shares of BEA fell 6 percent to $16.50 on Friday to trade below Oracle's bid for the first time since it was made on October 12, as no signs of an agreement emerged ahead of the deadline.

Oracle, the world's third-largest software maker with a market value of about $100 billion, has given BEA's board until Sunday at 5 p.m. California time to accept, after which Oracle will "move on and evaluate other potential acquisitions."

Icahn said he would like to get more than the $17 per share Oracle has offered and that higher bids could emerge if the board would just put the company up for sale.

"I'm not saying I accept 17," Icahn told Reuters. "It's going to be a three-month process."

In his letter, released in a filing with the U.S. Securities and Exchange Commission, he said, "If a topping bid arises, then all the better ... But if no topping bid arises it should be up to the BEA shareholders to decide whether to take the Oracle bid or remain as an independent company."

Oracle had called BEA's $21 price "impossibly high," saying it was an 80 percent premium to BEA shares before activist shareholders pushed for a sale, and nearly 11 times BEA's software maintenance service revenue in the last 12 months.

TAKE IT OR LEAVE IT

Icahn threatened to sue BEA's board if it takes any action that would dilute the voting power of existing shareholders or makes BEA a less attractive acquisition target.

The billionaire investor has accused BEA of attempting to derail a sale of the software company.

"In particular I view your public declaration of a $21 per share 'take it or leave it' price as a management entrenchment tactic, not a negotiating technique," he wrote in the letter.

BEA has not filed full financial results since the quarter ended April 2006, as it is auditing historical results after discovering irregularities in its recording of options grants.

Until accountants figure out how to clean up the books and restate previous financial reports, it cannot issue current results or hold a shareholders meeting.

The company has maintained that its inability to publish results has prevented it from showing investors how much it is really worth, resulting in Oracle underestimating its value. Some analysts say BEA is just using the delay in filing its results as a convenient excuse to help thwart a sale.

Icahn said in the letter he was starting a Delaware lawsuit to demand BEA hold a shareholder meeting before undertaking any actions such as issuing stock or selling assets.

Despite the Oracle and BEA stalemate, analysts say a deal could eventually be reached since BEA software, or middleware, connects computer systems and can be added to Oracle's data management programs to help it take on SAP AG (SAPG.DE).

"My guess is ... that Oracle will win," said Murray Beach, president of technology-focused investment bank Boston Corporate Finance. "Eventually they'll wear them down. I know there's a deadline but deadlines have a tendency to move."

Beach thought the two parties would negotiate and Oracle would probably have to increase its price, but it would "probably not be the price BEA is saying out loud."

Amid a wave of software industry mergers, analysts cite SAP, Hewlett-Packard Co (HPQ.N) and International Business Machines Corp (IBM.N) as possible BEA suitors. SAP has said it is not interested, while HP and IBM have declined to comment.

Talk of a BEA buyout began in August when Icahn said he had begun acquiring shares in the business software maker and called on its board to put the company up for sale.

Shares of BEA had risen as high as $18.94 after Oracle bid, sparking hopes that other companies may put in an offer. But as of Friday, no other parties had announced counterbids.

(Additional reporting by Tiffany Wu)