Oracle Corp. agreed on Monday to buy Sun Microsystems Inc. and its Java programming language for $5.6 billion (Rs28,000 crore), definitively ending International Business Machines Corp.’s pursuit of Sun and giving Oracle “the most important software” it has ever acquired.
The deal, which Oracle valued at $7.4 billion, including Sun’s cash and debt, represents the likely end to one of Silicon Valley’s more iconic companies, which had struggled for much of this decade to remain relevant.
The deal gives the acquisitive Oracle Java, the basis for its fastest growing business, Fusion Middleware. Meanwhile, IBM, which was unable to complete a deal with Sun in recent weeks, is left to wonder what might have been.
Swooping in: Oracle Corp. chief executive officer Larry Ellison. Kimberly White / Bloomberg
Roger Kay, analyst at Endpoint Technologies Associates, said Oracle makes a better acquirer because it already uses Sun’s technologies in some principal offerings. And while IBM has a large software portfolio, Kay said, Oracle is “more purely” a software company such as Sun.
However, IBM could have integrated Sun’s hardware into its line-up more easily, he said, adding that big cuts are likely ahead for Sun’s selling, general and administrative cost line, “which looks pretty heavy at 28.5% of revenue”.
Sun’s board, which may have stymied the IBM offer, unanimously approved the Oracle deal, which is expected to close this summer.
The deal values Sun at $9.50 a share, a 42% premium to Friday’s close. The deal price is slightly below IBM’s offer of $9.55 a share.
Sun’s talks with IBM unravelled earlier this month, reportedly on divisions within Sun’s board and concerns raised during IBM’s due diligence.
The breakdown raised new questions about Sun’s prospects and its chief executive, Jonathan Schwartz, who has been under pressure to come up with an alternative for the struggling computer maker.
Schwartz’s status was described by some as precarious if he couldn’t complete a sale of Sun.
Schwartz, who took over as chief executive officer in 2006, has made some progress in shifting Sun’s focus towards software, but the company still gets a big chunk of its revenue from the line of servers that has faced slowing sales recently.
The Silicon Valley icon has seen slumping sales of its servers and posted losses in three of its last four quarters.
Oracle expects the acquisition to add $1.5 billion to operating profit in the first year and at least $2 billion in the second year.
President Safra Catz said that would make the Sun deal more profitable in per-share contribution in the first year than its recent acquisitions of PeopleSoft, Siebel and BEA combined.
Oracle’s Fusion Middleware business is based on Sun’s Java language and software, and Oracle said it could now ensure continued investment in the technology. It will also acquire the Solaris operating system, the leading platform for its database business, which is its largest.
Oracle has a history of acquisitions, having made at least 260 deals valued at more than $50.5 billion since July 1992, according to FactSet Research.
This is Oracle’s largest deal since acquiring BEA Systems for $8 billion a year ago.
Kerry E. Grace contributed to this story.