Oracle to Acquire Sun Microsystems for Over $7 Billion, Strengthening Position Against IBM

Strategic Insights -

Oracle Corp. is set to enter the computer hardware market by acquiring Sun Microsystems Inc. for more than $7 billion, bolstering its position as the world's No. 2 maker of business software. The surprise announcement came after Sun's talks with IBM fell apart, with Oracle's president, Safra Catz, stating that the company intends to make the hardware division profitable. The deal would make Oracle the world's fourth-largest maker of servers, with a significant presence in the high-end market, worth about $17 billion last year.

Key Takeaways:

  • Oracle plans to acquire Sun Microsystems Inc. for over $7 billion, with a deal value of $5.6 billion net of cash and debt.
  • The acquisition will make Oracle the world's fourth-largest maker of servers and the No. 2 maker of high-end servers, with a significant presence in the market worth about $17 billion last year.
  • Oracle's president, Safra Catz, stated that the company intends to make the hardware division profitable, with Sun's top-selling products being high-end servers and storage gear.
  • The companies expect to close the transaction this summer, with the acquisition adding at least 15 cents a share to earnings in the first full year after closing.
  • Sun's board had unanimously approved the deal, which is subject to shareholder and regulatory approval.
  • Oracle and Sun have been partners for over 20 years, with Oracle's database and related software already working with Sun's Java software and Solaris operating system.
  • Analysts expect Oracle to report revenue of $22.7 billion this year, according to Reuters Estimates.
  • Sun would add more than $1.5 billion to Oracle's profit in the first year, rising to more than $2 billion in the second year.

Statistics:

  • $7.06 billion (deal value of Sun Microsystems Inc.)
  • $17 billion (market size of high-end server market)
  • $5.6 billion (deal value net of cash and debt)
  • $9.50 (offer price per share of Sun Microsystems Inc.)
  • 743 million (shares outstanding of Sun Microsystems Inc. as of Dec. 28)
  • 22% (stake of Southeastern Asset Management, Sun's top shareholder)
  • 15 cents (estimated addition to earnings per share in the first full year after closing)
  • $1.5 billion (estimated addition to Oracle's profit in the first year)
  • $2 billion (estimated addition to Oracle's profit in the second year)
  • $22.7 billion (expected revenue of Oracle this year, according to Reuters Estimates)

Sources:

  • Oracle Corp.
  • Sun Microsystems Inc.
  • Jefferies & Co.
  • Jyske Bank
  • Reuters Estimates
  • Bloomberg