After IBM (IBM) decided to not follow through with its purchase of Sun Microsystems (JAVA), Oracle (ORCL) slipped in and made the deal a reality. Oracle has entered into a definitive agreement to purchase Sun common stock for $9.50 per share cash. The premium for the deal comes in at $2.81 per share, as Sun closed Friday at $6.69 per share. The total price tag for the transaction is roughly $7.4 billion, which is $5.6 billion net of Sun's cash and debt.
Oracle President Safra Catz expects "this acquisition to be accretive to Oracle's earnings by at least 15 cents on a non-GAAP basis in the first full year after closing." With the second year coming in better than that, the deal has definite potential for Oracle. Oracle's CEO Larry Ellison said that this transaction "transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems."
The deal will give Oracle Java and Solaris, which both should help boost Oracle. This software is called the "most important software Oracle has ever acquired." Some of Oracle's businesses are built using Sun's Java language and software, so this move can help assure further "innovation and investment in Java technology for the benefit of customers and the Java community."
Sun's Board of Directors unanimously approved the transaction, which is believed to close this summer -- as long as Sun stockholder's approve the deal, and why wouldn't they?
So, why did Oracle get something done that IBM couldn't? There are some that have speculated that IBM couldn't pull the trigger on a Sun takeover because of regulatory issues. Nevertheless, this is yet another acquisition for Oracle, which has purchased PeopleSoft and other software firms in the past. Do we have a burgeoning tech behemoth on our hands? Oracle is trying everything that it can to challenge the likes of IBM, but is making acquisitions IBM couldn't the means to this end? We have to see the ultimate reaction to this deal, but Oracle is definitely trying.
What will IBM do to counter this move? I'm guessing nothing. In all reality, this is just a blip on IBM's radar -- as it is just two of the smaller companies joining as one. It will take months, perhaps years to see if this purchase by Oracle will have any impact in IBM's empire, but you can't blame Oracle for trying.
Let's enjoy the ride today, as Sun should trade at its takeover price near $9.50, netting some nice gains for Sun shareholders. Watch for Oracle to pull back to support in the $18 region, as purchasers will often drop a bit.