Oracle to buy Sun for 7.6 Billion USD

Courtesy : Forbes

Oracle said Monday it had agreed to buy struggling server vendor Sun Micro systems for $9.50 per share, representing a 42.0% premium to Sun's closing price of $6.69 on Friday afternoon.

The transaction is worth $7.4 billion, or $5.6 billion net of Sun’s cash and debt. Sun's board of director has unanimously accept the offer, which is still subject to regulatory approval.

The move comes after IBM ( IBM - news - people ) had reportedly walked away from a deal to acquire Sun Micro systems ( JAVA - news - people ) earlier this month, and marks a dramatic ending to the storied server maker's history as an independent company.

Oracle also said that it will generate $2.0 billion in profits for Sun two years after signing the deal, which is expected to be sealed this summer. That figure compares with only $306.0 million expected in profits for 2011. "This is a very attractive buy," Robert Jakobsen, an analyst with Jyske bank, told Forbes. "Oracle is saying it will buy Sun at $5.6 billion and it will generate $2.0 billion only two years after buying it."

"It's no secret that Sun hasn't been a commercial success in the last five years. Oracle will need to push to reduce costs and commercialize some of the software products to generate more profit," Jakobsen added.

Historically, Oracle has been able to reach aggressive profit targets by integrating companies very quickly, and it is expected to do a similar job with Sun, Jakobsen said.

"It's an interesting acquisition in that it gives Oracle a very strong operating system. It gets hardware, which should be interesting to see since Oracle doesn't make things. It's going to give them access to customers who weren't using the Oracle database," Shannon Cross, an analyst with Cross Research in New Jersey, said.

The deal also represents a bold move by Oracle ( ORCL - news - people ) Chief Executive Larry Ellison. It comes as companies selling hardware and software to big businesses are looking for trouble and competing with former partners as the recession hammers IT spending.

Over the past decade, the database vendor has elbowed its way into the market for the kind of big business software long sold by SAP ( SAP - news - people ) thanks to a string of acquisitions in the wake of the 2001 technology bust.

Now Oracle will own Sun's Solaris operating system, Java programming language, and servers and storage hardware systems businesses.

"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," Ellison said in a statement.

Shares of Oracle fell 6.3%, or $1.20, to $17.87; while shares of Sun Micro systems rose 35.4%, or $2.37, to $9.07, in morning trading in London.