Bolt from the Blue: Oracle, Not IBM, Captures Sun Micro

Just days after rumors circulated that IBM Corp. had pulled out of a multi-billion dollar deal to acquire Sun Microsystems, the maverick CEO of Oracle Corp. has stepped into the picture to take over the ailing workstation maker with an offer that, ironically, nearly matches the original proposition from IBM.

Sun, the Santa Clara, Calif., hardware and software vendor, famed for its motto "The Network Is the Computer," unexpectedly announced today that it has agreed to terms with Oracle, of Redwood City, Calif., for a purchase price of US $9.50 per share in cash, or $7.4 billion (including assumption of debt).

Sun's management had entered into talks with IBM in March, in which industry analysts had said that the Armonk, N.Y., computer giant had offered to pay close to $10.00 per share to gain control of Sun (please see For IBM, the Allure of Sun Lies in Next-Gen Software Services in this space for more). In subsequent, negotiations, though, IBM lowered its bid to $9.50 after performing due diligence on Sun's accounting, according to published reports. Further wrangling over the purchase price and internal squabbling within Sun's boardroom (between factions aligned between Chairman Scott McNealy and Chief Executive Officer Jonathan Schwartz) led to IBM lowering its offer once again to somewhere between $9.10 and $9.40. That caused the prospective deal to collapse entirely only two weeks ago (see IBM Talks Teeter as Sun Board Splits in The Wall Street Journal).

In today's announcement, Sun pointed to its flagship software properties as being key to the merger with Oracle, the world's leader in business management software. Sun's press release stated that the acquisition would give Oracle control over an operating system and a development language that have come to underlie much of the most lucrative software products Oracle sells. Sun's Solaris operating system is the leading platform for Oracle's database offerings, and Sun's Java programming language provides the foundation for powerful computing tools such as Oracle's Fusion middleware, the company's fastest growing business.

"The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems," Oracle CEO Larry Ellison said today. "Oracle will be the only company that can engineer an integrated system -- applications to disk -- where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability, and security go up."

"Oracle and Sun have been industry pioneers and close partners for more than 20 years," said Sun Chairman Scott McNealy. "This combination is a natural evolution of our relationship and will be an industry-defining event."

Today's announcement came as a surprise to the business world (see Oracle Agrees to Acquire Sun Microsystems in The Wall Street Journal). With two leaders in the software sector as mercurial and tough-minded as Ellison and McNealy, though, the pairing of Oracle and Sun may have coalesced quickly over the weekend, as the latter may have finally realized that the company he co-founded 27 years ago had met its match. Today's statement from Sun noted that the deal had been unanimously approved by the firm's board of directors, settling an internal dispute over Sun's continued independence, in which McNealy had argued for maintaining stewardship of the company through the precipitous downturn in the global economy.

Look for further analysis of today's blockbuster deal in the software field (such as this column by Senior Editor Tekla Perry) in IEEE Spectrum in the days ahead.


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