Oracle (ORCL) apparently isn’t afraid of due diligence, agreeing to buy Sun Microsystems (JAVA) for $7.4B, just two weeks after IBM’s talks to buy Sun collapsed.
The per-share price is $9.50 cash, which is 42% above JAVA’s close Friday. The companies valued the transaction at about $5.6B after factoring in Sun’s cash and debt.
The frequently acquisitive ORCL sees the deal adding to non-GAAP earnings by “at least” 15c/share in the first full year after closing.
IBM, which had indicated it was done pursuing JAVA, is “highly unlikely” to get into a bidding war with ORCL. But IBM will likely be forced to discuss the situation when it reports quarterly results tonight after the closing bell.
Roger Kay of Endpoint says Oracle makes a better acquirer of Sun Micro than IBM. ORCL uses JAVA’s technologies in some principle offerings and while IBM has a large software portfolio, ORCL is “more purely” a software company, as is JAVA, he says. However, IBM could’ve integrated JAVA’s hardware into its lineup more easily.
Kay says big cuts are likely ahead for JAVA’s SG&A line, “which looks pretty heavy at 28.5% of revenue.”
Nevertheless, investors look nervous about Oracle’s move. “Shareholders are wondering why in the world this company, who is very successful in software, is moving into hardware,” says Jefferies equity strategist Andy Baker. “It’s got people scratching their heads.”
It’s also not only investors who are perplexed. Microsoft (MSFT) CEO Steve Ballmer seemed shocked when he heard the news. “I need to think about it,” he told reporters in Moscow. “I am very surprised.”
And Ina Fried at CNET says Ballmer wasn’t the only one caught off guard. According to one of her sources, IBM hadn’t given up on acquiring Sun and was ultimately “blindsided” by Oracle’s move, she says.
One of the most valuable parts of the deal is MySQL, the open-source database Sun acquired last year for $1B, industry observers say. While MySQL would be a small part of Oracle’s business, the database would eliminate a major competitor to Oracle.
Erick Schonfeld at TechCrunch says ORCL can benefit by selling highly-optimized Sun servers running Solaris, Oracle databases and enterprise apps, while on the low-end selling MySQL on Dell and HP servers running Linux.
“MySQL is clearly a big prize for Oracle,” Om Malik writes at GigaOm.
(Jerry DiColo and George Stahl contributed to this report.)
April 20, 2009
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