Oracle Buys Sun for $7.4 billion

123jump.com Staff
20 Apr, 2009
New York City

Sun Microsystems agreed to be acquired by Oracle for $7.4 billion two weeks after IBM walked away from the deal. The deal will test alliances between Oracle and other two server makers HP and Dell. Oracle for the first time will sell hardware and software.

[R]10:45AM New York – Sun Microsystems agreed to be acquired by Oracle for $7.4 billion two weeks after IBM walked away from the deal.[/R]

The Oracle Corporation has agreed to purchase Sun Microsystems for $7.4 billion or $9.50 a share. Oracle and Sun in the past have worked together helping companies plumb their networking infrastructure and database applications.

However, the relationship in the last five years has been on the back burner after Sun’s Solaris operating system and expensive servers faced heavy competition from cheaper servers and free Linux operating system.

The struggling Sun never recovered after the burst of Internet boom and the stock had dropped as much as 90% from its peak ten years ago.

The deal between Oracle ((ORCL)) and Sun ((JAVA)) was cemented two weeks after IBM terminated its exclusive talks with Sun. IBM would have benefited from the Sun operating system Solaris which is more popular with clients than its own operating system for larger servers and from Sun’s servers that handle large application and traffic on Internet.

However, IBM balked at making the deal after its lawyers conducted due diligence and Sun management recommended higher compensation and bonus for the wider layers in management. IBM ((IBM)) lowered its offer to $9.40 a share from $10 which Sun board rejected.

Excluding the cash and debt the deal between Sun and Oracle values the company at $5.6 billion. Sun in a statement said that the deal is expected to be completed in summer and does require shareholder approval.

Oracle databases and Sun hardware and operating system powered the powered the early boom in Internet that lifted sales of both companies between 1997 and 2001. However, after the burst of the boom and emergence of cheaper alternatives for databases and hardware and software solutions both companies’ stocks have been hit hard. Sun, especially has been hit hard with the sharp slowdown in hardware sales.

While Oracle has managed to keep the momentum in sales and earnings in the last six years and doubled its sales and earnings to $22 billion and $5 billion respectively, Sun has struggled with its business and chalked up five years of losses in a row before returning to a small profit in the last two years.

Oracle however has been on aggressive acquisition spree and purchased companies valued at $35 billion in the last four years. Oracle has moved away from Sun and broadened its alliance with HP and with Dell as both have gained market shares in server segments. Oracle has positioned itself as the premier database vendor regardless of the operating system or hardware configuration.

The purchase of Sun will test Oracle’s current alliances now that it will compete with HP and Dell with its hardware and software solution and raising the bar for IBM.

Even though Oracle prides itself in handling multiple queries from large number of simultaneous users, its Website failed to work under the heavy load from investors searching for information on the deal for hours this morning.

Sun ((JAVA)) in the early morning jumped 36% or $2.39 to $9.08 and Oracle ((ORCL)) declined 4% or 80 cents to $18.25. Oracle peaked at $46 on September 1, 2000 and Sun at $257 on the same day.