Monday, April 20, 2009

The BIG News: Oracle (not IBM) Buys Sun!

Apropos to a previous post about the potential IBM / Sun transaction, instead Oracle was able to scoop up Sun following the breakdown of talks between Sun and IBM. So why did Oracle succeed and not IBM? What are the synergies? How will this affect the start-up / VC / PE world?

Rumors were that IBM could not complete the deal, since Sun wanted a hirer price. Price per share numbers that were mentioned ranged between $9-11 per share - about 100% premium at the time of the negotiations. Not too bad! But was it really price problems?

Oracle is paying $9.50 - within that range. So price could not have been the reason for the break down with IBM. So what happened? Here is my theory:

It seems that one of the main differences between Oracle and IBM (as an acquirer of Sun) is that IBM competes quite a bit more with Sun than Oracle. Oracle primarily deals with databases and software, while Sun is largely on the hardware and server infrastructure. IBM does both. When competitors combine - there is a lot more consolidation...and therefore more divisions shut down, more firing, etc.

With the Oracle / Sun combination - this can be a major change in the market - and create a real mammoth in the IT world. Oracle is buying new markets, products, customers, etc. Some may complement, some may not. This may enable Oracle to occupy a huge part of the IT infrastructure market, which may trickle into software sales for them as well.

In addition, with Oracle's history of successful large acquisitions (PeopleSoft, Siebel, BEA, etc.) and their subsequent integration processes, and IBM's history of smaller acquisitions - perhaps Sun chose the acquirer that would create more value to Sun - rather than just a higher price.

So I believe that Sun chose Oracle over IBM, not because of price, but because of the plans of the acquirer the day after the acquisition.

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