Oracle grabs Sun after IBM walks out on deal

Oracle, after talking to Sun Microsystems for several months, seized its chance to buy the company when negotiations with International Business Machines ended two weeks ago.

Sun, the fourth-largest maker of server computers, accepted a US$9.50 ($17) a share offer from Oracle after weeks of haggling with IBM.

Sun and Oracle signed a confidentiality agreement on April 10, and Oracle chief executive Larry Ellison announced the US$7.4 billion acquisition on yesterday.

IBM had offered as much as US$9.40 a share for Sun before talks ended. IBM, the world's largest computer-services provider, was concerned about the price and the cost of change-of-control provisions in some Sun executives' contracts. Sun needed more assurances that IBM would push the deal through to completion.

"It's not unlike Oracle and Ellison to come in after some deal has been announced, to come in and steal the bacon," said Peter Falvey, co-founder of Boston-based investment bank Revolution Partners.

IBM is unlikely to counter Oracle's bid.

Oracle, the world's second-largest software maker, has spent more than US$34.5 billion on 52 acquisitions since 2005. Ellison said he's buying Sun for the Java programming language and Solaris operating system. Oracle may also sell Sun servers and Oracle software in a single package.

"It created a nice opportunity for Oracle to step up," said Michael Shinnick, a fund manager at Wasatch Advisers in Indiana. The firm manages about US$4.5 billion, including Oracle and Sun shares.

Oracle said Sun will be one of the most profitable acquisitions, bringing in US$1.5 billion in operating earnings the first year.

Sun co-founder Scott McNealy said the deal with Oracle combines "two technology titans".

"Sun and Oracle have been pioneers and partners for way longer than I like to think about; over 20 years," McNealy said.

If Sun accepts a competing offer, it will have to pay Oracle a termination fee of US$260 million within two days, Sun said.

If IBM had bought Sun, the two would have controlled more than half of the market for high-end servers powered by the Unix system. There is no such overlap between Sun and Oracle, which leads the market in sales of database software.

- BLOOMBERG