Oracle to buy Sun Microsystems

After IBM dropped out of the bidding, Oracle stepped up with a $7.4 billion offer for Sun Microsystems.

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Oracle today announced that it has reached an agreement to acquire Sun Microsystems for $7.4 billion.

Sun had been searching for a buyer for months. It found one in Oracle one month after IBM reportedly withdrew an offer of $7 billion, a figure Sun's board deemed too low.

Under the agreement, Oracle will pay $9.50 per share for Sun stock. The total value of the deal is approximately $5.6 billion net of Sun's cash and debt.

Oracle has high hopes for the deal. In a statement, Safra Catz, Oracle president, said the Sun acquisition would be "more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined." Oracle said the business will contribute more than $1.5 billion in the first year.

Under the deal, Oracle acquires the Sun Solaris operating system, the leading platform for Oracle's database business.

"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," Oracle CEO Larry Ellison said in a statement. "Our customers benefit as their systems integration costs go down while system performance, reliability and security go up."

Ellison also crowed over the addition of Sun's Java programming language upon which Oracle's Fusion Middleware is based.

"We can now invest in Java technology, which is so critical to our success in middleware," Ellison said on a conference call with investors this morning. "We believe Oracle's Fusion Middleware is on track to be as large as our multi-billion-dollar database business."

As Ellison noted, Oracle has a history of large acquisitions, targeting companies that hold a leadership position in their markets, including  PeopleSoft, which led the market in HR,  Siebel, which led in CRM and  BEA, a middleware pioneer. The acquisition of Sun would also add significantly to Oracle's open source arsenal.

"This positions Oracle as the largest supplier of open source software," Sun CEO Jonathan Schwartz said on today's conference call. "There is no question in my mind that this transaction redefines the industry and solves the problems customers desperately seek to solve."

Also, as Oracle's co-president Charles Phillips said, it gives Oracle the largest software development community in the world.

The deal is expected to close this summer, subject to regulatory approval.

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