By Adam Lashinsky
January 16, 2008

A few weeks ago, when Oracle (ORCL) reported fine quarterly results, the company said it was no closer to persuading the board of BEA Systems (BEAS) to accept its earlier takeover offer. Clearly, Larry Ellison’s minions don’t quit easily. Instead, Oracle announced Wednesday it would acquire BEA for $8.5 billion, or about $7.2 billion when you subtract out the cash on BEA’s balance sheet.

A few lessons here. Pundits will say that business software increasingly is a game played only by the biggest of the big. That list that includes Oracle, Microsoft (MSFT), SAP (SAP) and three companies long known more for their hardware than software: IBM (IBM), Hewlett-Packard (HPQ) and Sun Microsystems (JAVA), which announced Wednesday a smaller acquisition of the Swedish database software maker MySQL. But, while the giants dominant the business software market, startups continue to flourish, especially of the Web variety. (CRM) and NetSuite (N) are two good examples. (Though, what’s this? NetSuite’s IPO bubble appears to have sprung a bit of a leak.)

A second lesson: Silicon Valley companies that refuse to adhere to modern financial theory become takeover bait. BEA is a solid cash generator whose growth has slowed. That’s what attracted raider Carl Icahn, who saw value in BEA’s stalled shares. The fact that BEA had more than a billion dollars of cash and a mere $20 million in debt shows that it suffers from a common tech-company disease: a failure to use its balance sheet to reward shareholders. (BEA’s debt-to-equity ratio, according to Yahoo Finance, is a mere 1.4 percent; By comparison, Oracle’s is a far more aggressive 32 percent.)

Here’s the final lesson. Larry Ellison gets what he wants in the end. The seer of Silicon Valley has long been quickly dismissed for picking unneccessary fights with Microsoft earlier in his career and for his flamboyant lifestyle. While Microsoft has been battling Google (GOOG), Oracle trained its balance-sheet guns on the business it knows best, spending $25 billion in the process. The results have been impressive.

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