Oracle Buys Sun: What Will Happen Next?

April 22, 2009

SANTA CLARA, Calif., April 20, 2009. Sun Microsystems (NASDAQ: JAVA) and Oracle Corporation (NASDAQ: ORCL) 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. The price represents a 42 percent premium to Sun’s Friday closing stock price of $6.69. This acquisition came after Sun broke negotiations with IBM, which was offering $9.40 per share.

Sun Press release said “There are substantial long-term strategic customer advantages to Oracle owning two key Sun software assets: Java and Solaris.” I think that this last sentence will reflect the main point of this purchase, as far as software developers are concerned. In his quest for getting a more important share of the software infrastructure of companies, Oracle acquires mainly a programming expertise and operating system that should complement its application and databases solutions. The hardware part should also allow Oracle to offer a complete optimized hardware and software solution to its customers, even if, due to Sun smaller market share, Oracle has to be friendly with its other hardware partners like HP or Dell. Acquiring Sun, Oracle also increase its expertise in the Java middleware area, after the acquisition last year of BEA Systems.

The other fact which is contained in Sun press release sentence, or I should say which is omitted, is MySQL. Sun acquired MySQL in January 2008, as a way to boost its software offer. MySQL has been for a long time an important issue for Oracle, as it was a big competitor in the lower end of the market for databases. With this acquisition, Oracle has the possibility of “quietly” killing the MySQL development process and offer the current MySQL paying customer an opportunity to migrate towards its own database product. I don’t see Oracle maintaining two database product lines, especially if one is mainly “given away” for free. Even if existing Oracle customers may not be tempted by MySQL, this new database was always in consideration for startups. There were also some companies that tried to build upon MySQL the missing tools to bring it close to the power of Oracle products.

We expect a similar fate, silent slow death through lower financial support, for mainly of the other Sun’s technologies: NetBeans, GlassFish, JavaFX or OpenOffice. Oracle always want to get the most of the financial aspect of acquisitions and spending money on open source projects and technology that has low immediate return on investment is not something that it would consider, unless it could be used as a tactical weapon against some of its competitors, like Microsoft or SAP for instance.

Sun Press Release
http://www.sun.com/third-party/global/oracle/index.jsp

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Will Borland Survive yet Another Crisis?

January 12, 2009

Borland discreetly announces this week the resignation of both Tod Nielsen, CEO since 2005, going to VMware as COO, and Peter Morowski, SVP of research and development, leaving the company to pursue other opportunities. Borland will also reduce its workforce by approximately 130 employees, or approximately 15 percent of its regular full-time staff. For the fourth quarter of 2008, Borland is expecting to report total revenue in the range of $38.5 million to $40 million, down at least 10% from previous quarter. Considering that operating costs of revenues for the third quarter were around $45 million and that a lot of them are fixed costs, this will be another quarter with an important operating loss for Borland. The current CFO will act as CEO.

In the past year Borland has often blamed its IDE division to be the cause of this problems, slowing its ambition to be an ALM leader with huge financial losses. In May, Borland finally managed to sell the CodeGear unit to Embarcadero. The financial results of CodeGear are now difficult to estimate, as Embarcadero is a private company. What is left at Borland is a mixed set of products, resulting of some in-house innovation and external acquisitions (Togethersoft, Segue), grouped under the “Application Lifecycle Management” banner. None of the components of this set is considered as a top leader in its specific market and good integration between existing products is always difficult to realize. Trying to sell these type products is more difficult, because you have to reach a higher level in the enterprise than for individual developer products. It is also the type of project that most companies will postpone in a period of difficult economic conditions. Furthermore, this put Borland in competition with bigger fishes, like IBM that purchased rival Telelogic last year, and companies like MKS that have their roots in the ALM market.

It would be a bad thing if Borland fails just after having celebrated its 25th birthday, but if it was already struggling in times where the economy was good, we could fear that survival would be even more difficult in the hard times that are ahead of us. Researching for this post, I found that Borland had already cut 40% of its workforce in 1995 after the resignation of its founder Philippe Kahn, so maybe we should believe that it could be just “another deep crisis” in Borland history, a company briefly knew under the name of Inprise ;o)

Borland full press release


IBM Acquires ILOG

July 31, 2008

IBM and ILOG announced that they have signed an agreement regarding a proposed acquisition by IBM of ILOG to be implemented by way of concurrent cash public tender offers in both France and the United States. The cash tender offer will be at a price of €10 per ordinary share. This will amount to an aggregate purchase price of approximately €215 million or approximately $US340. This price represents a premium of approximately 56 percent compared to ILOG’s one month average of closing share prices prior to July 28, 2008, and a 37 percent premium to the closing price of Friday, July 25.

With a difficult economic context that has reduced the market value for many technological companies, IBM continues to acquire smaller companies that can complement its product portfolio. After the stok market euphoria of year 2000, the stock price of ILOG has evolved laterally these recent years, making the decision of selling itself less difficult. ILOG will provide to IBM interesting technology for business rule management systems (BRMS) and rule engines for managing business change and process improvement. It has also a nice offering in the visualization market with products that adds sophisticated displays to Java, C++, and .NET applications, for the desktop and rich internet applications. The deal will provide ILOG technology with a better visibility and bigger sales channels.

http://www.ilog.com/corporate/releases/us/080728_ibm.cfm


HP Acquires EDS: Too Much and Too Soon?

May 15, 2008

HP and EDS today announced that they have signed a definitive agreement under which HP will purchase EDS at a price of $25.00 per share, or an enterprise value of approximately $13.9 billion. The transaction is expected to close in the second half of calendar year 2008 and to more than double HP’s services revenue, which amounted to $16.6 billion in fiscal 2007. The companies’ collective services businesses, as of the end of each company’s 2007 fiscal year, had annual revenues of more than $38 billion and 210,000 employees. HP intends to establish a new business group, to be branded EDS – an HP company, which will be headquartered at EDS’s existing executive offices in Plano, Texas. HP plans that EDS will continue to be led after the deal closes by EDS Chairman, President and Chief Executive Officer Ronald A. Rittenmeyer, who will join HP’s executive council and report to Mark Hurd, HP’s chairman and chief executive officer.

Buying EDS would vault HP to second place in the global technology services industry, behind International Business Machines Corp. EDS brings HP a strong base in infrastructure outsourcing and the combined company would be better-equipped to go after large clients. In 2000 HP already tried to buy PriceWaterhouseCoopers consulting unit without success. IBM acquired this business in 2002 for a much lower price than what HP was ready to pay.

EDS has a lower margin than HP, but could offer more “stable” outsourcing revenues that are provided by long term contracts. It could help some cross selling other HP products. With this move, HP is trying to emulate IBM’s strategy, as IBM draws about 60% of its revenues from services. By acquiring EDS, HP also gets its hands on EDS’ 60 percent stake in mPhasiS, an Indian services and outsourcing company, with 27,000 workers. IBM has around 50,000 employees in the region; Accenture about 22,000. The EDS stake in mPhasiS could allow HP to reinforce its presence in the fast growing Asiatic market.

However, HP could also face some serious problems. The lack of integration means that the deal will bring no cost synergies, usually an important motivation for this type of acquisition. We could also see some possible political wars between HP and EDS employees that will fight for independence.

The financial community is worried about the price paid. HP shares fell nearly 7 percent after the deal was announced on Tuesday, on top of a 5 percent drop on Monday in anticipation of the news. The declines have wiped about $13 billion off HP’s market value, taking it to $108 billion. The important question is to know if HP, like for the missed PWC deal of 2000, has the bad habit to buy at the peak of the market? Did somebody else want to acquire EDS at this price with the uncertain economic forecasts?


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