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Oracle Buys Sun: It's Official - Updated
Monday, April 20 2009 @ 08:40 AM EDT

Here's the press release. So they own Java and Solaris and MySQL, not to mention all the patents Sun pledged to use to defend Red Hat and Ubuntu when Microsoft began patent saber rattling, plus whatever patents Sun had that made Jonathan Schwartz say he had been approached to sue Linux but decided not to:
With business down and customers leaving, we had more than a few choices at our disposal. We were invited by one company to sue the beneficiaries of open source. We declined. We could join another and sue our customers. That seemed suicidal.

So whatever he was talking about now belongs to Oracle.

There was a conference call this morning, at 5:30 a.m. Pacific time. You can listen to a replay at (719) 884-8882, passcode: 923645. "A live audio webcast of the call will be made available at www.oracle.com/investor and a replay will be available for seven days after the call ends." [It's here now, but they make you register and you have to use either Windows Media or RealPlayer.]

Also, here's the letter Charles Phillips, President of Oracle, sent to customers and partners about the purchase, the part that will interest you most highlighted by me:

Oracle plans to engineer and deliver an integrated system -- applications to disk -- where all the pieces fit and work together so customers do not have to do it themselves. Customers benefit as their systems integration costs go down while system performance, reliability, and security go up.

Oracle's ownership of two key Sun software assets, Java and Solaris, is expected to provide our customers with significant benefit. Java is one of the computer industry's best known brands and most widely deployed technologies. Oracle Fusion Middleware is built on top of Sun's Java language and software. Oracle can now ensure continued innovation and investment in Java technology for the benefit of customers and the Java community.

The Sun Solaris operating system is the leading platform for the Oracle database. With the acquisition of Sun, Oracle can optimize the Oracle database for some of the unique, high-end features of Solaris. Oracle is as committed as ever to Linux and other open platforms, and will continue to support and enhance our strong industry partnerships.

I have some ideas on how this fits in with GNU/Linux, but really, who knows for sure? Only the players, and maybe not even the players, know what happens next. As Tim Bray puts it on Twitter, "It will be entirely safe to ignore all the uninformed prognosticators for the next few weeks. Like it or not, we're in wait-and-see mode."

Update: On the other hand, some details are already emerging that are not so pleasant to read. It seems the major investors were running the show, with members of the board talking to both Oracle and to IBM simultaneously at some point, and according to the account, IBM was surprised by the announcement:

Sun Microsystems Inc's (JAVA.O) largest investor was an invisible hand that guided the high-end computer maker's planned sale to Oracle Corp (ORCL.O), people with knowledge with the matter said on Monday.

Even though Southeastern Asset Management, which owns 22.3 percent of Sun, stands to lose money on its investment, analysts say a sale to Oracle at $9.50 a share is far preferable to waiting for Sun's share price -- which hit a low of $2.59 last November -- to recover on the Nasdaq....

Some members of Sun's board began pursuing talks with Oracle executives after three-and-a-half weeks of exclusive negotiations with IBM broke down, while others kept a discussion with IBM open, one source said.... The two sides signed on the dotted line late Sunday afternoon after drawing deal terms up, the source close to the talks said, adding, "IBM was surprised last night."

Now I have to agree that this doesn't look good. The investment firm was also a major investor in a company called Waste Management, a company involved in some kind of a dustup, and where you'll recall Bert Young worked at one time. One hopes it's a coincidence. Here's an article titled, The Best Mutual Fund Family in America" [PDF] which includes an interview with Mason Hawkins, who explains their philosophy:
Q: What is the investment philosophy of the Partners Fund?

The fund seeks long-term capital growth by investing primarily in a limited number of mid- to large-cap companies that are financially strong, well managed and that sell at market prices that are 60% of our assessment of their business value.

It’s a simple process that gets down to businesses, people and price. If you want to think of it schematically, you would draw three circles. One circle is good business, one is good people and one is good price; we want to be where those three circles intersect....

Q: Looking at your top 10 holdings, some of them are as much as 10% of total assets.

A: When we find one of those rare qualifiers, we’re willing to bet substantially on it. We believe that it is important to have a significant amount of our assets invested so that it makes a difference when the market comes round to properly valuing our firms.

Waste Management is a good example. We made a lot of money in Waste Management the first go around, when there were some questionable accounting and other issues that we thought were temporary and would get solved. Then we had a second bite at the apple when the CEO became very ill and the company was put in disarray. We understood the business well, felt that it had the best assets in the industry and thought that the problems were easily solvable. In that particular case we were willing to put a more significant amount of money into that particular company because of our conviction about the business and ultimately about the management.

If one assumes this is the same company, this would also be the company suing SAP over software. From the latest 10K:
On March 20, 2008, we filed a lawsuit in state court in the Southern District of Texas against SAP AG and SAP America, Inc., alleging fraud and breach of contract. The lawsuit relates to our 2005 software license from SAP for a waste and recycling revenue management system and agreement for SAP to implement the software on a fixed-fee basis. We have alleged that SAP contracted to provide software that would not need to be customized or enhanced and that the software would be fully implemented throughout the Company in 18 months. We are pursuing all legal remedies, including recovery of all payments we have made, costs we have incurred and savings not realized. SAP filed a general denial to the suit. Discovery is ongoing and we have been assigned a trial date of October 2009. We are vigorously pursuing all claims available.

We are still examining all of our alternatives associated with the development and implementation of a revenue management system, some of which may be affected by the ultimate resolution of the lawsuit. As we continue to assess the alternatives available to us, we may determine that the best course of action will be to move forward with another software and abandon the SAP revenue management system. If we decide to abandon the SAP software, the abandonment would result in an impairment charge of between $45 million and $55 million.

They wanted software that wouldn't need to be "customized or enhanced". Sigh. Money they grok. I can't help but wonder how much they understand about software.

Someone is spilling the beans to Reuters, it seems, and here's more about another investor, KKR, which it seems may get its "Sun Mico debt investment back" thanks to the Oracle deal. Details on the Wall Street Journal too:

One winner? KKR. The deal means that the firm’s listed affiliate KKR Private Equity Investors “will get at least $350 million when the deal closes. That is a nice turnaround for the firm, considering that in its year-end results it reported that the investment had decreased in value by $167.4 million,” report our colleagues over at Private Equity Beat.
Do they care where MySQL ends up or OpenOffice, when there is $350 million to be made? Some days I wish the enterprise never discovered FOSS. Here's another detail from the link, Private Equity Beat:
KPE has got to be happy it held onto the notes rather than converting them into stock. Under the original deal, the notes were convertible at $7.21 apiece. But after a one-to-four reverse stock split in November 2007, that conversion price quadrupled to $28.84 per share. Compared with the $9.50-per-share price Oracle is offering, KPE’s investment would be deeply underwater.
On the up side, it seems Microsoft is unhappy:
Neil Charney, general manager of Microsoft's applications platform and developer tools, said "customers should ask themselves if this will add more complexity and cost to their environments at a time when the industry is asking for more clarity and value."
Steve Ballmer says he was surprised by the announcement and needs time to think about all this. Me too. Finally, this report by Eric Savetz on Barron's Online indicates that IBM was not interested in the end and sees the deal as no big change in the market:
Asked on a post-earnings conference call about the news that Oracle (ORCL) is going to acquire Sun Microsystems (JAVA), IBM CFO Mark Loughridge said that he sees no practical change in the competitive landscape as a result of the deal. “Oracle and Sun have been partnering for 2 decades,” he says. “We’ve picked up 14 points of market share to 32 points since 2000. As I look at this - what’s really changed? Nothing. We’ve been competing with with Sun. We know ORCL inside and out.”
And when asked about the failed IBM buyout, he said this:
“I won’t comment on the particulars here,” he said. “We run a very disciplined process. When we run a disciplined process, we get good results.”
I take that to mean they would have bought Sun if they had cared to. Andy Patrizio asks an interesting question:
Overall, this seems a better fit for Sun. The final price is almost exactly that of IBM's price, so why is Sun taking this and not IBM's lucre?
And if you really want to get depressed, read Gavin Clark's analysis in The Register, on the end of a beautiful dream, which ends like this:
Sun liked to brag about how much code it had contributed to open source over the years. Oracle, though, has never made such lofty claims. Instead, it's used open source to advance its business or to try to close down the competition.

Open source will continue at Oracle - along with Java. It could even profit. Just don't expect it to help anybody else, though.

And here's the press release in full:

*****************************

Oracle to Buy Sun

* Monday April 20, 2009, 7:33 am EDT

SANTA CLARA, Calif.--(BUSINESS WIRE)--Sun Microsystems, Inc. (NASDAQ:JAVA - News) and Oracle Corporation (NASDAQ:ORCL - News) announced today they have entered into a definitive agreement under which Oracle will acquire Sun common stock for $9.50 per share in cash. The transaction is valued at approximately $7.4 billion, or $5.6 billion net of Sun’s cash and debt.

“We expect this acquisition to be accretive to Oracle’s earnings by at least 15 cents on a non-GAAP basis in the first full year after closing. We estimate that the acquired business will contribute over $1.5 billion to Oracle’s non-GAAP operating profit in the first year, increasing to over $2 billion in the second year. This would make the Sun acquisition more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined,” said Oracle President Safra Catz.

“The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems,” said Oracle CEO Larry Ellison. “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. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.”

There are substantial long-term strategic customer advantages to Oracle owning two key Sun software assets: Java and Solaris. Java is one of the computer industry’s best-known brands and most widely deployed technologies, and it is the most important software Oracle has ever acquired. Oracle Fusion Middleware, Oracle’s fastest growing business, is built on top of Sun’s Java language and software. Oracle can now ensure continued innovation and investment in Java technology for the benefit of customers and the Java community.

The Sun Solaris operating system is the leading platform for the Oracle database, Oracle’s largest business, and has been for a long time. With the acquisition of Sun, Oracle can optimize the Oracle database for some of the unique, high-end features of Solaris. Oracle is as committed as ever to Linux and other open platforms and will continue to support and enhance our strong industry partnerships. “Oracle and Sun have been industry pioneers and close partners for more than 20 years,” said Sun Chairman Scott McNealy. “This combination is a natural evolution of our relationship and will be an industry-defining event.

“This is a fantastic day for Sun’s customers, developers, partners and employees across the globe, joining forces with the global leader in enterprise software to drive innovation and value across every aspect of the technology marketplace,” said Jonathan Schwartz, Sun’s CEO, “From the Java platform touching nearly every business system on earth, powering billions of consumers on mobile handsets and consumer electronics, to the convergence of storage, networking and computing driven by the Solaris operating system and Sun’s SPARC and x64 systems. Together with Oracle, we’ll drive the innovation pipeline to create compelling value to our customer base and the marketplace.”

“Sun is a pioneer in enterprise computing, and this combination recognizes the innovation and customer success the company has achieved. Our largest customers have been asking us to step up to a broader role to reduce complexity, risk and cost by delivering a highly optimized stack based on standards,” said Oracle President Charles Phillips. “This transaction will preserve and enhance investments made by our customers, while we continue to work with our partners to provide customers with choice.”

The Board of Directors of Sun Microsystems has unanimously approved the transaction. It is anticipated to close this summer, subject to Sun stockholder approval, certain regulatory approvals and customary closing conditions.

There will be a conference call today to discuss the transaction at 5:30 a.m. Pacific time. Investors can listen to the conference call by dialing (719) 234-7870, passcode 923645. A replay will be available for 24 hours after the call ends at (719) 884-8882, passcode: 923645. A live audio webcast of the call will be made available at www.oracle.com/investor and a replay will be available for seven days after the call ends.

About Oracle

Oracle (NASDAQ:ORCL - News) is the world's largest enterprise software company. For more information about Oracle, please visit our Web site at http://www.oracle.com.

About Sun Microsystems

Sun Microsystems, Inc. (NASDAQ:JAVA - News) develops the technologies that power the global marketplace. Guided by a singular vision -- "The Network is the Computer" -- Sun drives network participation through shared innovation, community development and open source leadership. Sun can be found in more than 100 countries and on the Web at http://www.sun.com.


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