Subba’s Serendipitous moments

April 20, 2009

Oracle acquires Sun — Unexpected and interesting

Oracle announced that it is going to acquire Sun for $9.50 in cash valuing Sun at about $7.5 billion or $5.6 billion net of Sun’s cash and debt.

The deal comes after talks between IBM and Sun failed. I had analyzed why the IBM may not really need Sun here and here. IBM had offered $9.40 per share. Oracle’s offer is a 40% premium over Sun’s closing price.

However this acquisition by Oracle is both unexpected and very interesting. Sun’s software assets could become better strategic assets to Oracle than Sun’s server or storage business. After Sun acquired MySQL , the relationship between Oracle and Sun had soured. Oracle had acquired Innobase to neutralize MySQL but it hadn’t made much headway. Of course Java could become the pivot of Oracle’s middleware strategy.

The open source database angle becomes interesting. Having MySQL in its stable gives Oracle access to its huge developer base and web applications market. Will Oracle kill MySQL to protect the Oracle 11g cloud margins or milk it for whatever it is worth before allowing it to die in neglect will be interesting to watch.

Sun has a large installed base and becomes an immediate target market for Oracle to target with its applications.

Since Sun’s manufacturing is already outsourced, there’s nothing much left for Oracle to do. It can sell whatever is left in the hardware business — the storage, server and any other chip business to either HP or Dell.

Oracle now fine tunes the database performance on Solaris and sells a combo. HP and others will feel the impact.

Oracle gets the scale and muscle to attack IBM.

On the overall, there seems to be a better strategic fit between Oracle and Sun, than Oracle and IBM. Both companies also have a strong feisty culture and hyper competitive spirits so integrating them could be easier.

What is also interesting is that Sun’s board approved the deal quickly and unanimously after just scoffing IBM’s deal which was just 10 cents less per share.

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8 Comments »

  1. Hi Subbaraman,

    An interesting read. I think it will be interesting to watch how MySQL fares in the future and how Oracle steers Java.

    I’ve taken a slightly different slant at http://peterthomas.wordpress.com/2009/04/20/mergers-and-value/ and would be interested in your thoughts on this.

    Peter

    Comment by Peter Thomas — April 20, 2009 @ 11:57 pm | Reply

  2. Hi Subba,

    I took the same swipe at it this morning and came up with very similar thoughts on the same, except that I really wanted to look at it more from the products perspective rather than overall: http://www.searchstorageasia.com/content/sun-shines-oracle-land.

    Comment by Allan — April 21, 2009 @ 11:34 am | Reply

  3. Subba,

    Thanks for the post on my blog. Today I have put together a more considered piece, drawing on the thoughts of people in the blogosphere and on various on-line forums. This can be found at:

    http://peterthomas.wordpress.com/2009/04/21/combinatorics/

    Peter

    Comment by Peter Thomas — April 21, 2009 @ 11:54 pm | Reply

  4. While Oracle might have some synergy with MySQL, I’m not sure of the positive synergies between Oracle and JAVA and Solaris workstations.

    1. Is not Oracle getting too far from their core specialities? I’m of the view that companies should identify their core competencies and fight hard in that sphere. For Apple it is consumer electronics/cool design, for Google it is search, for IBM it is the consultancy/enterprise apps. It makes little sense for companies to take every battlefield and fight every war, particularly when the wars they fight are far from their homeland. Will the solidiers in the field have enough motivation to fight those distant wars and do the commanders know the tactical manuevres in the new terrain?

    2. If you need why super-diversification and growing too big is bad, take a lood at the Banks or even conglomerates like GE. GE has so far extended from its original mission of building better technology that it is going through an identity crisis, and it is finance division is dragging it down.

    3. Having too many brands and letting the executive energies spread too thin is the same folly GM and Ford did in their heydays. They went on an acquisition spree and soon they had 100 different brands, with very little cohesive strategy from the executives. IBM was smart and got rid of its non-core things like PC division a couple of years ago.

    4. Even assuming that Sun fits under Oracle’s broad strategy, it is not clear how they are going to digest the company. They have already had some big ticket acquisitions including PeopleSoft. Are they stuffing more than they could chew? The open source culture of Sun might also be pretty different Oracle.

    So, it is going to be far from a cake walk for Oracle. Most M&A’s are failures except when they are catastrophes.

    Comment by Balaji Viswanathan — April 22, 2009 @ 12:52 am | Reply

  5. Agree with most of them – Subba. Put coherently, though i dont agree with the IBM story. I have a take on this at my blog.http://vagabondmind.blogspot.com/2009/04/sun-is-dead-long-live-sun.html

    Comment by Sanjay — April 27, 2009 @ 2:34 am | Reply

  6. Not so surprising if you’ve been following the partnership both leadership groups have created over the past 10 years. Cisco, Panduit, VMware, EMC are all next to buy each other out and solidify their already close partnerships. check out http://www.thedcofthefuture.com it speaks directly to the “data center” partnership that Oracle and SUN now have solidified.

    Comment by natemare13 — April 27, 2009 @ 11:31 pm | Reply

  7. Getting comprehensive information about the competitors is hard. Only few companies have done comprehensive researches . Recently I came across this site – ecompetitors.com, which apparently has quality information on top 10,000 global industries.

    It is worth a look.

    Comment by business guru — May 22, 2009 @ 5:22 pm | Reply

  8. Hey very nice blog!!….I’m an instant fan, I have bookmarked you and I’ll be checking back on a regular….See ya

    I’m Out! :)

    Comment by online stock trading advice — January 11, 2010 @ 6:21 pm | Reply


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