Oracle to Acquire Sun

In a major development for the software market and IT industry at large, Oracle Corporation today announced that it’s poised to acquire Sun Microsystems for $7.4 billion, or $5.6 billion net of Sun’s cash and debt.

 

Just two weeks after Sun-I.B.M. talks broke down when the latter lowered its offer from $10 to $9.40 per share, Sun’s board unanimously approved a deal worth $9.50 – still far more than their company’s closing price last week of $6.69.

 

Oracle’s (News - Alert) president, Safra Catz, said she expects the acquisition to lead to more than $1.5 billion in profits in the first year, and more than $2 billion in the second year.

 

“This would make the Sun acquisition more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA (News - Alert), PeopleSoft and Siebel combined,” said Catz, pictured right.

 

The deal – subject to stockholder approval – likely will close this summer, according to the companies.

 

Today's announcement comes as Sun bends to financial pressures fueled by the down economy. The company had been rumored recently to be facing at least 1,500 layoffs under a restructuring plan. The Los Angeles Times put the total figure at 5,000.

 

Even so, the deal signals a major shift for the enterprise software and computing systems markets.

 

Oracle Chief Larry Ellison (News - Alert) said that his company will emerge as the only one that can engineer an integrated system – applications to disk – where all the pieces fit and work together so customers don’t have to do it themselves.

 

“Our customers benefit as their systems integration costs go down while system performance, reliability and security go up,” Ellison said.

 

Sun created the Solaris operating system, a version of Unix, and the Java Internet programming language. About 1 million developers use Sun’s software to write applications. The company also long has been committed to open source software. Even as it was going through a painful restructuring, the company released a new version of its flagship open source database, MySQL 5.1.

 

Those two software assets – Java and Solaris – are the keys to the deal.

 

Oracle Fusion Middleware, its fastest growing business, is built on Sun’s Java language and software. The company says it now can ensure innovation and investment in Java technology for the benefit of customers and the Java community.

 

Jonathan Schwartz, Sun’s chief executive officer, called this “a fantastic day” for Sun’s customers, developers, partners and employees.

 

“From the Java platform touching nearly every business system on earth, powering billions of consumers on mobile handsets and consumer electronics, to the convergence of storage, networking and computing driven by the Solaris operating system and Sun’s SPARC and x64 systems,” Schwartz said. “Together with Oracle, we’ll drive the innovation pipeline to create compelling value to our customer base and the marketplace.”