Monday, April 20, 2009

Oracle-Sun Deal Should Endure Scrutiny

High-tech giant Oracle agreed to buy Sun Microsystems for $7.4 billion after IBM abandoned its bid for the iconic software company, in part, analysts believe because of perceived risk that antitrust authorities, either in the United States or the European Union, would reject the deal. While the Oracle-Sun deal will likely receive serious scrutiny, a Monday afternoon memo from investment firm Stifel Nicolaus says its experts think it is likely to be approved. "We believe an Oracle-Sun deal faces significantly fewer obstacles in the antitrust review than an IBM-Sun deal would have, particularly as it does not raise the issues regarding consolidation in the server and storage markets that would have been problematic for a deal with IBM," they wrote.

There is less overlap between the product offerings of Oracle and Sun, which reduces horizontal concentration issues, the analysts said. Plus the deal does not pose the same vertical integration issues that IBM-Sun would or add fuel to existing antitrust investigations. There may be some concern among customers and suppliers about increasing Oracle's market position but the analysts think most will regard the arrangement as a welcome alternative to a Sun combination with IBM. While some may welcome a counterweight to IBM, others such as Microsoft may see the process as an opportunity to raise concerns about Oracle's growing market strength and potentially to even condition the deal, the memo said.

Oracle's acquisition of PeopleSoft, which was initially blocked by the Bush administration Justice Department in 2004, was subsequently allowed by a federal court after Oracle fought for the deal rather than folding, Stifel Nicolaus said. Oracle's deal with BEA was approved by both U.S. and EU regulators last year. "We don't think the approval of either of those deals carried any kind of 'okay, but no further' signal that would cause us to think the deal with Sun will have significant problems," the memo said. There are substantial long-term strategic customer advantages to Oracle owning two key Sun software assets: Java and Solaris, the firms said in a press release. "The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems," Oracle CEO Larry Ellison said.