Jan. 16 (Bloomberg) -- Oracle Corp., the world's third- biggest software maker, agreed to buy BEA Systems Inc. for $8.5 billion in cash after a three-month fight, capitulating to the board's demands for a higher price.

BEA investors will receive $19.38 a share, 24 percent more than yesterday's close, Oracle said today in a statement. BEA, the maker of software that lets programs share information, rejected an unsolicited bid of $17 in October and asked for $21, which Oracle called ``impossibly high.''

The purchase, Oracle's largest in three years, marks a victory for billionaire investor Carl Icahn and a reversal from last month, when Oracle said a friendly deal couldn't be done with the current board. Oracle Chief Executive Officer Larry Ellison is looking to BEA to help him maintain the pace of sales amid slowing growth in technology spending.

``It is a lot more than what they initially offered,'' Edward Lewis, a partner at Atlantic Equities LLP in London, said in an interview. ``BEA managing to flush out a higher offer from Oracle is obviously proof that their strategy worked.''

Icahn, BEA's largest shareholder, said today that he supports the bid. He had pressed the board to agree to a takeover and sued in Delaware demanding that shareholders gain the right to vote on a sale. He owns about 13 percent of BEA.

The 71-year-old could use a win as some of his other investments perform poorly. He owns about 14.5 percent of Florida homebuilder WCI Communities Inc., which has dropped 89 percent in the past year.

Share Performance

Oracle rose 61 cents to $21.92 at 4:01 p.m. New York time in trading on the Nasdaq Stock Market. BEA, based in San Jose, California, surged $2.88, or 18 percent, to $18.46. The Standard & Poor's 500 Information Technology Index has dropped 11 percent this year on concern that companies are cutting technology budgets as economic growth slows.

The new price is expensive, based on BEA's revenue from maintenance contracts over the past 12 months, according to Bear Stearns & Co.'s John Di Fucci. The New York-based analyst calculated the price at about 9.7 times BEA's maintenance revenue, compared with the 5 to 8 times sales Oracle typically pays.

``They think BEA and Oracle together will generate more revenue than they would alone,'' said Di Fucci, who expects Oracle's stock to outperform its peers. ``I question whether they can.'' Paying that much also may set a precedent and jeopardize Oracle's negotiating position in other bids, he said.

Middleware

BEA is the largest independent maker of middleware, which helps different types of programs share information. While the company has lost sales to larger rivals Oracle and International Business Machines Corp., revenue from maintenance, or customer- support contracts, has increased.

Buying BEA, run by 46-year-old Alfred Chuang, will help Oracle challenge IBM for the market lead and give the company BEA's customers in the financial and telecommunications sectors, as well as salespeople with expertise in the field.

``Middleware requires a highly specialized, technically sophisticated sales force,'' Ellison said today in a conference call. ``It's difficult to obtain that kind of talent.''

The transaction should add as much as 2 cents to per-share profit, excluding some items, in the first full year after its completion, Oracle said. The company expects to finish the purchase by mid-year. Goldman Sachs Group Inc. advised BEA on the deal. Oracle didn't use a banker.

True Value

In November, BEA corrected 10 years of results to account for backdated options grants and severance contracts. The restatements allowed the company to file its first full quarterly report since August 2006. BEA earlier said investors would see it was worth more than the Oracle offer once the full report came out.

With BEA, Oracle will have spent more than $33 billion on acquisitions, starting with the January 2005 purchase of PeopleSoft Inc. They have helped the company become one of the few to offer business programs, middleware and databases software all at once, helping Ellison, 63, sell more to existing clients.

``Oracle had to do a lot of development on next-generation middleware anyway, so this deal is a lot more palatable for investors once you back out those expenses,'' Morgan Stanley's Peter Kuper said in an interview. The Boston-based analyst advises investors to buy Oracle shares and hang on to BEA's.

Oracle trails Microsoft Corp. and IBM in worldwide software sales. Researcher Gartner Inc. predicted in October that global technology spending will climb 5.5 percent this year, compared with an estimated 8 percent increase for 2007, as companies tighten budgets.

Oracle Purchase

Oracle's last major acquisition, the $3.3 billion takeover of Hyperion Solutions Corp., was almost a year ago, so its sales growth was at a risk of slowing, Atlantic's Lewis said.

``This purchase allows them to make the next couple of quarters and to fuel their growth on BEA's very strong installed- customer-base maintenance revenues,'' said Richard Williams, an analyst at Cross Research in Livingston, New Jersey. He called today's price fair.

Separately, Oracle today agreed to buy Captovation Inc., the Minneapolis-based maker of products that can take information written on paper and convert that into a digital format computers can read. Oracle didn't disclose the terms of the deal.

To contact the reporter on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net; Ville Heiskanen in New York at vheiskanen@bloomberg.net

Last Updated: January 16, 2008 16:26 EST