Database giant Oracle announced Monday that it will buy Sun Microsystems for $9.50 per share—roughly $7.4 billion. The two companies reached an agreement after an unsuccessful bid by IBM fell short at $9.40 per share.Oracle will use a combination of cash and borrowed money to pay for the purchase, which will cost Oracle $5.6 billion after taking into account Sun’s debt and cash holdings.
Oracle predicted the merger will increase its annual operating income by $1.5 billion and add at least 15 cents per share to net income in its first year.
Oracle is a software and services company, best known for advanced database management software used by many of the world’s largest enterprises. Sun produces both hardware and software. It produces Solaris, a popular version of the Unix operating system. Sun is also the creator of Java, a software language and development system that runs on hundreds of millions of devices, ranging from mainframe computers to cellphones. Sun makes server computers that use its own Sparc processor chips, but also makes machines that run processors from Intel Corp. In addition, Sun makes data storage gear, competing against HP and EMC Corp. of Hopkinton.Purchasing Sun confirms this shift by enlarging Oracle’s middleware business. More importantly, the deal means Oracle now goes up against IBM and HP in selling servers.
The Sun Solaris operating system is the leading platform for the Oracle database. With the acquisition of Sun, Oracle can optimize the Oracle database for some of the unique, high-end features of Solaris. With it’s latest conquest, Oracle plans to offer a broad range of products, including servers and storage, with all the integrated pieces: hardware operating system, database, middleware and applications.
As became apparent with the acquisition of PeopleSoft in January 2005, Oracle has made acquisitions an important component of its growth strategy.Apart from the high-profile acquisitions which include BEA Systems, PeopleSoft, Hyperion and iflex, the behemoth has also swallowed whole numeorus other IT enterprises and has been expanding it’s tentacles across the IT spectrum.
Oracle last major purchase was BEA Systems, which strengthened the former’s foothold in middleware technologies. The BEA purchase meant Oracle was now selling middleware, or software that acts as a bridge between different applications. This put the company in competition against other middleware companies such as IBM.
The deal also has a significant financial implications. Already shares of Oracle stock closed down 24 cents at $18.82 after the news, while Sun Microsystems stock rose $2.46 to $9.15, both on the Nasdaq stock exchange. However the biggest and most obvious question is the extent of “Rightsizing”. Industry analysts estimate that Oracle’s cost savings from Sun operations suggest job cuts of up to 10,000 workers from Sun’s payroll of more than 30,000.
Oracle’s appetite for acquisitions may seem insatiable, but one has to marvel at the sheer size of this IT stalwart. What began as a databse company, today stands tall as a paragon of end to end solutions provider. As a matter of fact, that is the ultimate goal of this gargantuan beast, to provide an highly integrated and equally secure solution to all its customers.
But with this latest buy, has Oracle bitten off more than it can chew?