Oracle to Buy Sun for $7.4 Billion

By Rochelle Garner and Connie Guglielmo
Bloomberg News
Tuesday, April 21, 2009

Oracle agreed to buy Sun Microsystems for about $7.4 billion in cash, swooping in after the server maker's talks to be acquired by IBM failed.

Oracle will pay $9.50 a share, 42 percent more than Sun's closing price Friday. Oracle plans to make Sun a profitable part of its business and said the purchase will add $1.5 billion to operating earnings, excluding some items, in the first year.

The takeover moves Oracle, the world's second-largest software maker, into the market for server and storage computers, pitting the company against IBM and Hewlett-Packard. Oracle chief executive Larry Ellison also gains Sun's Java programming language and Solaris operating system, which work with its top-selling database program.

"They're really going to zero in on just the most strategic part of Sun's hardware business," said Heather Bellini, an analyst at UBS AG in New York, with a "buy" rating for Oracle's shares. "They'll end up making the company much better-run."

Excluding Sun's cash and debt, the deal is valued at $5.6 billion, Oracle said in a statement. Sun had about $2.6 billion in cash and marketable securities, and about $700 million in long-term debt at the end of 2008. Oracle has about $11.3 billion in cash and marketable securities.

Sun, based in Santa Clara, Calif., rose $2.46, or 37 percent, to close at $9.15. Oracle, based in Redwood City, Calif., dropped 24 cents, to $18.82.

Sun's Java technology lets developers write programs that work across operating systems and on a variety of devices. The software has been installed on 800 million desktop computers and also powers 2.1 billion mobile devices.

Sun's Solaris competes with Linux and Microsoft's Windows software. While Sun offers versions of Solaris and its MySQL database program free to developers, the company makes money by selling service, support and software updates. Sun boosted software sales by 21 percent in the quarter through Dec. 28 and said in January that it projects revenue from those products to reach more than $600 million a year.

Oracle had sales of $22.6 billion in the latest fiscal year.

Oracle President Safra Catz said the company plans to operate Sun at "substantially higher margins." She declined to provide specifics.


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