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Oracle, entering hardware arena, agrees to buy Sun for US$7.4B

Elizabeth Montalbano | April 21, 2009
Ellison said Java, Solaris were main reasons for acquisition

Jonathan Schwartz, CEO, Sun Microsystems with Sun Chairman Scott McNealy (file photo)

NEW YORK, 20 APRIL 2009 - Oracle has signed a deal to purchase Sun Microsystems for US$7.4 billion, plunging the enterprise software vendor into the hardware market and making Sun the latest company to be subsumed by the Silicon Valley giant.

Oracle will pay US$9.50 per share in cash for Sun, or US$5.6 billion net of Sun's cash and debt, according to Oracle. The move follows Oracle's purchases of a raft of companies in the last few years, including Siebel, PeopleSoft and BEA Systems.

Sun shares rose by $2.41 to $9.10 in trading about a an hour after the market opened, while Oracle shares declined by $1.03 to $18.03. Shares of the buying company in big mergers and acquisitions often sink at first as investors debate the relative merits of laying out large amounts of cash for the acquisition.

The deal comes after Sun reportedly walked away from an offer from IBM a few weeks ago. Though there were rumors Oracle might purchase Sun, it has never before had a hardware or server OS business, a market in which a significant amount of Sun's assets are tied, so the deal seemed unlikely. However, Sun's Solaris long has been a successful platform for Oracle's database business.

The two companies also have areas of common interest in their support for Java software, one of the only areas where the companies' product lines overlap. Sun has an open-source Java application server called Glassfish that Oracle likely will hold onto, although the fate of Sun's other commercial Java software, the Java Enterprise System (JES), is unknown.

Oracle also had overlap in this area when it purchased BEA, but BEA WebLogic had significant installed base, and Oracle kept the product alive. Sun's installed base for JES is smaller, so Oracle may choose not to hold onto it.

Indeed, on a conference call Monday, Oracle CEO Larry Ellison said Java and Solaris were the two main reasons Oracle purchased Sun, a move that is in line with Oracle's acquisition strategy to buy companies with "market-leading products."

Calling Java "the single most important software asset we have ever acquired," he said Oracle's Java-based middleware business, bolstered first by the BEA acquisition and now by the purchase of Sun, is on track to become as large as Oracle's flagship database business. Oracle's Fusion middleware is based on Java.

Oracle also considers Solaris "by far the best Unix technology available in the market," which is why more Oracle databases run on that OS than any other, Ellison said. He said Oracle's enterprise customers running both products will be able to experience new benefits by technical integration of the products.

 

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