In a brilliant retrieve from the really nasty situation it was in after its deal to get bought by IBM fell apart, Sun surprised everybody who thought it had no options left – which was practically everybody – by turning up this morning with a deal to get bought by Oracle, Sun’s sometimes best friend. Oracle, Silicon Valley’s avaricious maw, agreed over the weekend to buy Sun for $9.50 a share, a total of $7.4 billion or $5.6 billion less Sun’s cash and debt.
un chairman Scott McNealy called the marriage of the “two titans” a “momentous day” that “refines the industry.” The Sun deal is not as big as Oracle’s acquisition of PeopleSoft, BEA or Siebel but gives Sun a 42% premium to last Friday’s $6.69 close.
The money is a bit sweeter than the $9.40 a share IBM had reportedly ultimately offered, but failed to reach the $10.50 neighborhood where IBM and Sun supposedly started talking.
McNealy & Ellison in a "Town Meeting" - January 2006
The Sun board has already blessed the deal, as one might imagine.
Oracle, which was reportedly only approached Thursday evening, had no time for the due diligence IBM reportedly did but it did run the numbers. It claims that Sun will contribute 15 cents to its earnings on a non-GAAP basis the first full year after closing, an event that’s supposed to happen this summer.
Oracle has none of the antitrust baggage that might have threatened and at least endlessly delayed an IBM-Sun acquisition and the Oracle-Sun deal unleashes a new animal into the marketplace that IBM might find has claws.
It lets Oracle – soon to be a combination of best-in-class enterprise software and mission-critical computing systems – in effect a mini- IBM – vertically integrate database to disk – at a time when data is king – and have everything fit together so its customers’ own integration costs go down – important right now – while system performance, reliability and security should go up.
Oracle co-president Charles Phillips remarked that Oracle’s “largest customers have been asking us to step up to a broader role to reduce complexity, risk and cost by delivering a highly optimized stack based on standards.”
He said Oracle might now turn out pre-packaged segment-specific machines that were the “complete industry in a box.”
Despite Sun’s horrendous string of losses, Oracle figures it can run Sun at a profit – which suggests a big remake at Sun – and that it will contribute over $1.5 billion to Oracle’s non-GAAP operating profits year one, increasing to over $2 billion in year two. The thought had Oracle CEO Larry Ellison obviously licking his lips on the early-morning conference call, which included no Q&A.
Oracle president Safra Catz said the Sun acquisition would be more profitable per share in year one than Oracle had planned for its BEA, PeopleSoft and Siebel acquisitions combined.
The Sun acquisition gives Oracle control of Java, the basis of Oracle’s all-important Fusion software and a component in literally billions of devices. Ellison called it “the most important software Oracle has ever acquired.” Oracle said it will ensure continued investment and innovation in the widgetry.
IBM has a vested interested in Java, so that’s a threat.
The deal also gives Oracle Solaris, which happens to be the leading platform for Oracle’s database. Linux is Oracle’s second most popular platform. Oracle said it can now optimize its database for some of Solaris’ unique, high-end features.
Oracle gave few details of what of Sun’s will survive. It said nothing, for instance, about the rival open source MySQL database that Sun spent a billion dollars to buy. Having about as little use for Microsoft as the old Sun, Oracle might put some effort into OpenOffice.
However, it did suggest that Sun’s Sparc machines might survive – at least for the time being – and contemplated converging storage, networking and computing driven by the Solaris. Its focus, Ellison said, will be on joint customers.
It is unclear what will happen to McNealy or Sun’s pony-tailed CEO Jonathan Schwartz.
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