Oracle swallows a desperate Sun

Redwood City (CA) – It appears that Oracle had mercy with Sun Microsystems’ increasingly desperate desire to find a buyer. After IBM had told the company last week that it had no interest in Sun anymore, Oracle today announced that it would acquire Sun for about $7.4 billion in cash.

It has been clear for some time that Sun was shopping for a potential buyer. Last month, it seemed that IBM was close to acquiring the company for about $6.5 billion. However, IBM lost interest and this morning we learned that Oracle agreed to swallow Sun for an even better deal, $7.4 billion in cash ($9.50 per share), which represents a 44% premium over the Friday closing price.

Even at $9.50, Sun appears to be a bargain for Oracle. In terms of money, we remember that in March of 2007, Sun’s market cap was about $13 billion and Oracle may not have been able to purchase the company for much less than $20 billion. And thinking back to the dotcom boom in late 2000, Sun had a market cap of more than $180 billion. Also, Oracle has been among the most stable Silicon Valley companies during the current financial downturn. The company’s stock is down “only” 25% from its 52-week high, while most other IT giants are battling with 50%+ share price losses. On Oracle’s part, there could not have been a better time to buy Sun – and considering that it currently has $11.2 billion in its war chest, there is not even the need to assume debt.

What about the product synergies? Compared to the IBM deal, Oracle has a very different interest in Sun. IBM may have scrapped Sun’s hardware division and focused simply on Sun’s cloud computing technology. Oracle, however, is a software-only company and now can expand its range into hardware. Oracle pointed to key assets of Sun- Java, Solaris, Sparc and servers. Oracle called the acquisition “highly strategic” and at least at this time, it seems that Oracle wants to become a major enterprise hardware player that offers integrated technology “from applications to disk”.
“The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems,” said Oracle CEO Larry Ellison in a prepared statement. “Oracle will be the only company that can engineer an integrated system where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.”

In fact, the acquisition makes Oracle/Sun one of the largest software/hardware/services companies in the industry with combined annual revenues of more than $37 billion and a total of 116,500 employees globally (Oracle 86,500; Sun 30,000.) Following the announcement, Sun’s stock price jumped by about 36% to $9.12, while Oracle’s shares dropped by about 6%. Oracle says the deal is likely to close this summer, subject to Sun stockholder approval, regulatory approvals and customary closing conditions.