European Regulators Scrutinize Oracle Purchase of Sun Microsystems
Friday, September 4, 2009
Oracle, the software giant that has been gobbling up companies amid the recession, hit a regulatory speed bump in its $7.4 billion bid to acquire Sun Microsystems as Europe's antitrust watchdog announced plans to investigate the deal.
The European Commission's competition bureau said Thursday that it had launched an in-depth review of the merger to examine how it could impact competition in the software industry. The probe comes one month after the U.S. Justice Department cleared the acquisition.
"The commission has to examine very carefully the effects on competition in Europe when the world's leading proprietary database company proposes to take over the world's leading open-source database company," said Neelie Kroes, head of the commission's competition bureau. "In particular, the commission has an obligation to ensure that customers would not face reduced choice or higher prices as a result of this takeover."
The inquiry was a surprise to investors and analysts who had thought the deal's biggest obstacle was removed with the Justice Department's approval. And the action highlights a recent history of greater intervention by European regulators compared with those in the United States, experts said.
Specifically, the European Commission said it would examine whether Oracle would continue to develop Sun's rival open-source database software MySQL after the merger is completed. Open-source software development is an approach that allows anyone to use the source code to develop compatible applications.
Kroes said Sun's software could be a more affordable alternative to "proprietary solutions" -- such as the paid-for software programs offered by Oracle -- an important option for companies as they scale back information technology budgets amid the global economic downturn.
"The Commission has to ensure that such alternatives would continue to be available," Kroes said. The commission said it has until Jan. 19 to decide to approve or reject the merger.
Oracle issued a statement Thursday noting that Sun shareholders had approved the merger in July and that the Justice Department's approval of the merger came without conditions. Oracle has been on a buying spree with six acquisitions this year.
The apparent rift between U.S. and European antitrust regulators comes as the Obama administration has promised to ramp up enforcement of competition laws and has criticized the Bush administration for quickly pushing through mergers and for allowing greater consolidation of industries including banking, technology and telecommunications.
In May, the commission fined computer-chip maker Intel a record $1.45 billion for allegedly using strong-arm tactics to force computer makers to buy their chips over those made by competitors, particularly AMD. Antitrust experts, including Albert Foer of the American Antitrust Institute, say U.S. regulators will be compelled to follow their European counterparts' lead on the Intel decision.
"So much for the big change," said Andy Gavil, a professor at Howard University School of Law. He said the European Commission has been more "interventionist" than the United States in antitrust policy.
"The E.C. takes a longer-term view and is more cautious about the consequence this merger can have on open source software and what that means for consumers," Gavil said.