In looking at the numbers of Oracle and the numbers for BEA I come up with some interesting tidbits that can help think through the movements in the market.
BEA has officially rejected an offer at $17, main reason invoked by the board being that "BEA is worth more to Oracle". Note the distinction between "BEA is worth 12-17 by itself" from "BEA is worth more than 17 to Oracle". The latter statement has been the thesis of Icahn and co all along, that BEAS is worth more to a strategic buyer than it is worth on its own to its shareholders. That is the only way the shareholders are going to get their premium. The market either seems to agree or is just plain greedy by bumping the price of the common stock to almost 19 as of this morning Saturday.
So let's look at ORCL's number see if we can replicate some of the Icahn's team thinking. EV/EBIT=15 for ORCL (Enterprise Value to Cash Flow or EBITDA). EBITDA for BEAS is 242M which yields an EV = 3.6B. BEAS has $1.4B in cash minus 500M in debt which means 0.9B for a total of EV+cash=4.5B. Is an offer over $4.5B money lost to ORCL? How do you get to a 6.6B offer? simple, in M&A and boardroom parlance this is called "synergies", which in plain employee speak means: you are redundant.
With a EV/EBIT of 15, 1B in EV needs to be backed by EBIT of 66.6M. The name of the game then is to extract 66M from operations at BEAS to create a $1B EV for Oracle. For each 66M of EBIT extracted out of BEAS, Oracle's EV increases by 1B, which Oracle can pay to BEAS shareholders in the form of $2.5 per share.
Given that BEAS has 1.3B turnover, 66M represents a 5% increase in EBITDA. By the way, BEAS has an operating margin of 15%, Oracle 33%? Again the Icahn thesis that being an independent company in a consolidating market is just unsustainable and detrimental to investors.
So without changing ANYTHING to the operations of Oracle, Oracle figures they can can get 18% juice on EBIT from BEAS, which represents an EV increase of $3.6B.
So $4.5B + 3.6B = $8.1B. An 8.1B offer is a per share price of $20.8.
This deal can get done at $21
Again any additional 5% cut in operating expenses, represents a billion of value for ORCL and therefore a $2.5 per share. R/D for BEAS represents 15% cost and from Oracle's standpoint everything else is kind of redundant. If you cut everything but RD, you free up 55% EBIT which represents an additional 11B of EV which sets the price at an outrageous $48 per share of BEAS!
Without going this far (which would probably kill the baby) even by taking out simple redundant stuff like administrative and HR, you can juice up 15% of EBIT easily which means a $27 per share price. I rest my case and I am going to stop torturing virtual napkins and envelopes and conclude:
THE RANGE VALUE OF BEAS FOR ORACLE IS $20-$25