Oracle to buy Sun for US$7.4bn

Software giant Oracle is to buy server and software maker Sun Microsystems, the two companies announced late Monday.

In our opinion, the Solaris operating system is by the far the best Unix technology available in the market

Oracle founder Larry Ellison

In a joint statement, Oracle said the transaction was valued at approximately US$7.4 billion, or US$5.6 billion net of Sun's cash and debt. Sun's stock will be bought at US$9.50 in cash per share. The deal has been unanimously approved by Sun's board, but still needs to be approved by Sun's shareholders and financial regulators, the companies said.

The deal means Oracle will be taking over Java, the language and software that underpins Oracle Fusion Middleware. In their announcement, the companies said that Java is "the most important software Oracle has ever acquired".

The enterprise application specialist also picks up the Solaris operating system, described by the companies as the "leading" platform for Oracle's database products. Oracle will now be able to optimise its database for the high-end features of Solaris, the companies said. "In our opinion, the Solaris operating system is by the far the best Unix technology available in the market," Larry Ellison, Oracle's chief executive, said in a conference call after the announcement on Monday.

The companies also moved to reassure customers about their stance on Linux, saying Oracle is as committed as ever to Linux and other open platforms, and will continue to support and enhance its strong industry partnerships.

Ellison underlined the integration benefits to customers of the deal. "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," he said in the statement.

Sun chairman Scott McNealy, noting that Oracle and Sun have been partners for more than 20 years, said in the statement: "This combination is a natural evolution of our relationship and will be an industry-defining event."

At the start of April, Sun reportedly rejected a buyout offer from IBM, which apparently made a formal bid of $9.40 per share or less.

In Monday's conference call, Oracle president Safra Catz claimed Oracle has a track record of integrating acquisitions very rapidly, and said this time will be no different. "We will combine the software assets quickly after closing," she said.

Gartner analyst Andy Butler said that while his reaction to the deal was more positive than negative, the announcement does raise a number of questions regarding the survival of Sun's hardware lines. The Santa Clara, California-based company sells servers based on its own Sparc chips, x86 servers based on Intel and AMD chips, and StorageTek storage, among other hardware products "Sun's revenue stream has always remained very dependent upon hardware revenues," Butler said.

The analyst suggested that the IBM's failed takeover bid for Sun would have created potential for overlap and conflict at the hardware level.

He noted that just because Oracle is not in the hardware business, it doesn't mean all Sun's hardware lines of business will survive. "Existing customers need to show some caution from a hardware perspective — there is no product clash, but that doesn't guarantee that, in 12 or 24 months' time, all the hardware lines of business will remain current and viable," Butler said.

Oracle has partnerships with server hardware makers other than Sun, such as IBM and Dell. Butler said he did not believe the deal would end or have a severe impact on those relationships. However, he added that if Oracle's enthusiasm for Solaris gets stronger, that could have a bearing on how much effort HP or IBM puts into Solaris support on their x86 servers, and how much Sun puts into support of other Unix operating systems.

"Users of other Unix operating systems will want a degree of clarity from Oracle," Butler said, adding that said it would be very interesting to see how Oracle positions its database products with Sun's lower-level MySQL database software.