Oracle has bought Sun Microsystems for $9.50 a share, or $7.4 billion. After taking into account Sun’s cash and debt, Larry Ellison’s company is looking at a net cost of around $5.6 billion. So, what did Oracle see in the deal to acquire Sun that I.B.M. didn’t?

Sun Microsystems has been hawking itself out to potential buyers for a while now. In March it emerged that I.B.M. may be the company willing to put its money where its mouth was and make an acquisition. But it wasn’t to be. Just two weeks later the talks faltered and I.B.M. walked away from any potential deal empty-handed.

I.B.M. is originally thought to have offered around $9.55 a share for Sun but the offer was soon reduced to $9.40 a share. At this point Sun turned down the offer, maybe as a negotiating tactic. It didn’t work and I.B.M. walked away rather than promise to up the share price deal at all.

Luckily for Sun Microsystems, Oracle was waiting to pounce. According to The New York Times, a deal between the two companies was announced today. The Oracle bid was between the two extremes of I.B.M’s offers and can conceivably be seen as a fair deal for both sides.

This can still be seen as a bit of a gamble on Oracle’s part though. Sun has been described as “damaged goods” in recent years, and while its core business seems solid, many analysts suggest it has never really recovered from the dot-com bust a few years ago.

Larry Ellison, Chief Executive of Oracle, explained ina conference call on Monday that Sun’s Java programming language and Solaris operating system were the main attractions for shelling out this money in order to acquire a company down on its luck. He added:

Oracle will [now] 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. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.

With Oracle promising to turn Sun Microsystems into a profitable business, two things are likely to happen quickly. Oracle will likely sell-off the worst performing parts of the company and make sweeping cuts to the 30,000-strong workforce. The ultimate aim will be to make Oracle a true competitor to the likes of H.P. and, yep you guessed it, I.B.M. What goes around, comes around.

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Entry was posted on Monday, April 20th, 2009 at 8:45 pm under Opinion, Technology.

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