Oracle Wednesday won a three-month-long campaign to buy BEA Systems by raising its bid for the business software maker by 14 percent to $8.5 billion.
Activist investor Carl Icahn, BEA's largest shareholder with a nearly 13 percent stake, said he supported the deal, one of last year's highest profile corporate takeover battles.
Icahn and BEA's board initially rejected Oracle, saying it undervalued the company, but no other buyers emerged even as BEA's investment bank, Goldman Sachs , solicited bids from other software makers.
The price that BEA finally agreed to, $19.375 per share in cash, represents a compromise between the $17 that Oracle offered in October and the $21 that BEA had demanded.
"It's a fair price. It's a good deal for Oracle. It's a good deal for BEA," said Trip Chowdhry, analyst at Global Equities Research.
Shares of BEA rose 19 percent to $18.59 in morning Nasdaq trade, while Oracle shares were down 2 cents to $21.29.
BEA is a maker of "middleware," which helps business computer systems interact with each other. Oracle could sell its technology alongside its own middleware, database products and business-management software.
Oracle said the deal, valued at $7.2 billion net of cash on hand of $1.3 billion, would increase its adjusted earnings per share by at least 1 cent to 2 cents in the first full year after closing, which is expected in mid-2008.
Icahn started accumulating a stake in BEA in August, when the stock traded as low as $11.02. He called on the board to put BEA up for sale, saying a bigger technology company would be able to boost revenue and profit.
Icahn had claimed that BEA was not worth as much to shareholders as a stand-alone entity as it would be to shareholders of a potential acquirer.
Jefferies analyst Katherine Egbert said Icahn's argument particularly rings true amid signs the United States may be heading into a recession.
"In a recession, it is harder for smaller companies to compete," Egbert said. "Companies are more reluctant to buy from smaller companies in a recession because you have uncertainty."