Oracle to buy Sun for $7.4B after IBM drops bid

Oracle orcl gobbled up Sun Microsystems java for $7.4 billion Monday, boldly swooping in to take advantage after IBM dropped its bid to buy one of high-tech's best-known — and most-troubled — companies.

The startling deal, Oracle's first hardware acquisition, steps up Oracle's bid to become a one-stop technology shop for more than 300,000 corporate, government and academic customers. It also effectively ends Sun's 27-year history as Silicon Valley's maverick independent.

"With the acquisition of Sun, Oracle is now able to make all of the pieces of the technology stack fit together and work well," Oracle CEO Larry Ellison said in a conference call Monday.

Though far from Oracle's biggest acquisition in a four-year shopping spree that has cost more than $40 billion, it could be the most strategic.

Oracle could deftly use Sun's products to enhance its own software. Sun's Java programming language is used to develop applications for websites, mobile phones and even DVD players. Sun's Solaris operating system is a leading platform for Oracle's database software.

Java is the "single-most-important software asset we have ever acquired," Ellison said.

Sun CEO Jonathan Schwartz predicted Oracle will be able to offer its customers simpler computing solutions at lower prices by drawing on Sun's technology.

Under the deal, Oracle will pay $9.50 in cash for each Sun share.

IBM offered just a dime a share less, but acquisition talks withered this month in a squabble over price and the extent to which IBM was willing to see the deal through an antitrust review. A deal with Oracle likely won't face the same antitrust hurdles because there is far less overlap between the two companies. The merger requires approval from the Justice Department and European Union.

IBM, which reported a sharper-than-expected 11% drop in first-quarter revenue and slightly lower profit Monday, had no comment on Oracle's early-morning surprise.

Sun shares soared 37% to $9.15 in trading Monday. Oracle slipped 1% to $18.82. Just a few weeks ago, Sun shares were less than $4.

The acquisition can't come soon enough for Sun, many analysts say. Despite $13.3 billion in sales over the past four quarters, Sun lost $1.8 billion in the same period.

Given its failing financial fortunes, some analysts had argued that the onetime tech darling couldn't survive on its own. For that reason, primarily, analysts said Monday that they aren't shocked to see Sun boomerang so quickly into Oracle's waiting arms.

"From Sun's perspective, this is a good deal," says Andy Butler, a vice president at Gartner. "This is as good as they were going to get."

But is it a good deal for Oracle? At $7.4 billion, Oracle is paying slightly more than IBM offered, but in the end that might not matter, says Dave Novosel, a tech analyst at Gimme Credit.

Why? Despite the current global shake-up in the tech sector, Oracle has a strong balance sheet and deep cash reserves. As a result, he says, the Sun deal probably won't have much of an impact on Oracle's bottom line.Unlike most of its tech brethren, Oracle has successfully stitched together a series of acquisitions into a cohesive business-software dynamo the past few years.

Oracle estimates Sun will contribute more than $1.5 billion to Oracle's adjusted profit in the first year and more than $2 billion in the second year.

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