Oracle Agrees to Buy Sun for $7.4 Billion

Early Monday, April 20, 2009, Oracle announced it had signed a definitive deal to purchase Sun Microsystems for $7.4 billion. According to Oracle, they will pay $9.50 per share in cash; which is $7.4 billion, or $5.6 billion net of Sun’s cash and debt. This deal comes after Sun rejected an offer from IBM a few weeks prior. Reportedly, Sun did not like the terms that IBM was offering.

Sun Microsystems is one of many companies Oracle has acquired in the last few years including BEA, PeopleSoft, and Siebel. Oracle claims, however, that acquiring Sun will contribute $1.5 billion to Oracle’s non-GAAP operating profit in the first year, increasing to over $2 billion in the second year. This would make the Sun acquisition more profitable per share contribution in the first year than for the acquisitions of BEA, PeopleSoft, and Siebel combined.

Sun offers Oracle a large market share in the hardware and server OS business; which Sun established its name through during the dot-com boom. While Oracle currently does not have business in the hardware and server OS business, Sun’s Solaris has been a successful platform for Oracle’s database business. Due to their close partnership for 20 years, both companies feel this is a natural evolution of their relationship.

The largest area of common interest for the two companies is their support for Java software. Both companies claim Java is the most important software Oracle has ever acquired. Oracle believes Java is critical to Oracle’s middleware and that the company’s middleware offerings are on track to be as big as its database storage business. Oracle believes the acquisition of Sun combines best-in-class enterprise software and mission-critical computing systems.

While the deal with Sun will not provide as big a reach that its former suitor IBM would have, the buyout of Sun will provide Oracle a combined hardware / software business model similar to IBM’s, which it currently competes with in the database market.
We can likely expect great integrations of servers and server OS software with Oracle’s powerful Exadata database machine.