Monday 27 April 2009

IBM, Sun, and Oracle

It was only the other week that I was happily predicting what would happen when IBM bought Sun Microsystems. Looking at points of synergy and whatever the opposite of synergy is (if you know, do e-mail me). Then the next time I look round, I find IBM has dropped out and Oracle has stepped in. So what’s going on?

It seems IBM went off the idea of buying Sun, and even after Sun came back hoping for a second chance, IBM felt that such a deal could lead to long anti-trust cases around the globe. So unlike the man from Del Monte, they said no.

So, the story is that Oracle has an agreement to acquire Sun for $7.4 billion. The total value of the deal includes the stock, the purchase of Sun's cash reserves, and the assumption of debt. According to Oracle, the acquisition will cost them $5.6 billion, net of Sun's cash and debt. The deal prices Sun’s shares at $9.50 – a 42 percent premium over the closing price the previous Friday evening.

Oracle is quite bullish about what they can do with Sun financially, saying it expects to add at least 15 cents to its bottom line in the first year after the deal closes (a summer wedding, apparently). Oracle also expects to add $1.5 billion to operating profit in the first year and more than $2 billion in the second year.

You might ask what a software company like Oracle wants with a hardware company like Sun Microsystems, but, of course, there’s much more to Sun than hardware. Oracle already uses Sun's Java software and language in some of its products, including its Fusion Middleware business, and Oracle uses the Solaris operating system for its database business. So perhaps more synergy than you might think at first.

Sun currently employs 33,000 people, while Oracle has 86,000. There have been no announcements of redundancies.

The announcement was full of all the usual warm fuzzy comments about close partnerships and natural evolution. Oracle has never had hardware before – being a software company. But the acquisition will give it access to some users that currently aren’t using Oracle products.

Of course, another way of looking at the takeover is that it combines two organizations that have strongly disputed the Microsoft onslaught. Perhaps this will make them stronger and bolder. And this led me to wondering what if Microsoft had bought Sun? After all, a move into hardware wouldn’t be too big a leap. Then Microsoft would “own” Solaris and Java – which they might very well kill off in order to make Windows and .Net the only games in town. I’m sure if Larry Ellison thought of that possibility, he’d have bought Sun as a pre-emptive strike just to stop his auld enemy from getting their hands on it.

All in all, an interesting development.

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