Oracle Wanted Sun's Software Unit Only, Records Show

Larry Ellison's protestations to the contrary notwithstanding, Oracle may have been forced to buy the whole company to close deal.

Paul McDougall

May 12, 2009

2 Min Read
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Despite CEO Larry Ellison's claim that Oracle's acquisition of Sun Microsystems will give his company the ability to construct unmatched business systems that are integrated from "applications to disk," Oracle originally sought to acquire only Sun's crown-jewel software assets while leaving its declining hardware unit to the vultures, according to a regulatory filing.

Oracle on March 12 "sent a letter to our board proposing the acquisition by Oracle of certain of our software assets, a minority equity investment by Oracle in our common stock, and entering into certain strategic relationships," Sun said in a filing Monday with the Securities and Exchange Commission.

The ultimate outcome of the negotiations differed greatly from Oracle's original offer. Oracle on April 19 struck a deal to acquire all of Sun -- including its aging line of Solaris-powered Sparc servers -- for $7.4 billion, or $9.50 per share.

So why did Oracle agree to a big-bucks deal for a vendor that derives most of its sales from a declining box business? The SEC filing shows that Oracle's hand may have been forced by IBM, which was engaged in its own merger talks with Sun earlier this year, and by yet another vendor -- possibly Hewlett-Packard.

Sun's filing notes that in addition to Oracle, its springtime suitors included "Company A" and "Company B." A is widely believed to be Big Blue, while B, most logically, is HP. It thus appears that Oracle grudgingly acquired Sun's hardware line just to get its hands on the ubiquitous Java Web development platform -- and keep it from IBM's possession.

"IBM's offer may have put a scare into Oracle," Stuart Williams, an analyst at Technology Business Research, noted in a recent report. "Oracle has standardized its software stack on [Sun's] Java; it cannot afford to have one of its competitors own this crucial software building block."

Sun's software business has other enticing assets, as well. The open source MySQL database boasts more than 11 million installations, and there are some key virtualization technologies in Sun's portfolio. Ultimately, Oracle may spin off Sun's hardware group, Williams believes.

That's not the official line from Redwood Shores. Ellison has said Sun's hardware business is integral to his plans. "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," said Ellison.

Ellison, in other words, intends to make the most of Sun's hardware assets -- after all, he's stuck with them, at least for now.

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About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

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