Business software maker BEA Systems Inc rejected a $6.7 billion takeover bid from Oracle Corp on Friday, throwing the company into play by saying the unsolicited offer was too low.

Shares rose 38 percent, above a five-year high, and activist investor Carl Icahn, BEA's biggest shareholder and a vocal critic of management, said he was pleased by Oracle's offer but called for higher bids.

Shares of BEA, which makes software that helps other programs interact, rose to $18.82, nearly $2 above Oracle's $17 offer that was made on October 9 but not disclosed until Friday.

BEA is worth substantially more, the company's board said in a letter to Oracle.

Icahn, who said in mid-August he had a stake, said he expected higher offers to emerge from rivals of Oracle, naming International Business Machines Corp and Hewlett-Packard Co.

In a letter to BEA CEO Alfred Chuang on Friday Icahn suggested an auction as one way to proceed.

IBM spokesman Ian Colley said the company does not comment on rumors or speculation. Officials with Hewlett-Packard could not be reached for comment.

The industry has been consolidating over the past few years with Oracle, IBM and Hewlett-Packard among the most aggressive buyers.

Icahn has said BEA should be put up for sale because being part of a bigger software maker would allow it to squeeze significant costs out of BEA's operations.

Katherine Egbert, an analyst with Jefferies & Co, said BEA was probably worth about $18 per share at the most and that its operating margins could double if Oracle bought it.

They could probably fire everybody except the engineers, she said. She estimates that the company's current operating profit margin is about 22 percent to 23 percent.

BEA has not reported its operating profit margin since July 2006. The company has only released limited financial data since then as it reviews historical results for what it said were errors in its accounting of stock options grants. That led potential buyers to underestimate its value, it said.

BEA sells software called middleware that helps business computer systems communicate with each other.

Some investors have bet Icahn would fail to engineer a sale. About 21.6 million BEA shares, or 5.5 percent of the company's outstanding shares, had been sold short as of the end of September, nearly a 65 percent increase from the middle of the month. People sell a stock short betting that the price of shares will decline.

Icahn said the offer from Oracle Chief Executive Larry Ellison means he probably will not have to wage a proxy battle against BEA's board. He has said he would do so if it didn't put the software maker up for sale.

I think this will save a lot of ... aggravation, he said. I think the best way to win the war is not to fight it.

Analysts have long identified Oracle as one of the most likely suitors, saying BEA would give the world's largest maker of database software technology that is missing from its portfolio.

Oracle confirmed on Friday that it has discussed a potential acquisition with BEA executives over the last several years.

Oracle's offer for BEA represents what would be its biggest acquisition since it bought Siebel Systems for about $6 billion in January 2006. Earlier this year Oracle bought Hyperion Solutions for more than $3 billion.

The offer comes a week after German rival SAP offered 4.8 billion euros ($6.8 billion) for Business Objects, raising expectations for further consolidation in the software industry.

BEA said it was being advised by Goldman, Sachs & Co and Wachtell, Lipton, Rosen & Katz.

(Additional reporting by Sinead Carew, Christopher Kaufman, Megan Davies, Bill Berkrot and Philipp Gollner)