Oracle buys Sun for USD7.4bn

Oracle has agreed to buy struggling Sun Microsystems for USD7.4bn after Sun failed to agree takeover terms with IBM. The deal gives software firm Oracle the ability to sell Sun’s hardware, which includes servers, workstations and data storage devices. According to CEO Larry Ellison, Oracle will now starting selling tailored bundles of computing equipment and software to its clients.

As well as access to Sun’s hardware, the deal gives Oracle the right to sell Sun’s Java programming technology, which Oracle CEO Larry Ellison describes as ?the single most important software asset we have ever acquired.?

Sun Microsystems, a high-flier during the dot-com boom, has been under pressure to find a buyer since last year, when it announced Q3 losses of USD1.7bn and revealed plans to lay off 6,000 staff. Recently, IBM courted the firm, reportedly offering USD7bn, or USD9.40 per share. Sun rejected the offer and broke off negotiations after IBM failed to provide assurances that it would follow through with the takeover if the deal became subject to antitrust investigations.

Last week, Bloomberg reported that Sun was willing to restart takeover talks with IBM. However, today’s news reveals that talks with Oracle have proved more fruitful. Sun’s board has unanimously approved the merger and the deal is expected to close this summer, subject to stockholder approval.

Oracle CEO Ellison hasn’t always been keen on the Sun acquisition. In 2003 he commented that buying Sun would be a ?bad idea? for Oracle. In a conference later that year he added: "I don't think Oracle should be in the hardware business, so I don't think you'll see us buying any hardware companies."

Understandably, the business environment has changed considerably in the past six years. However, there is still cause for Oracle to be cautious. In January, the company was forced to cut 500 jobs in its North American sales and consultancy businesses.

If the deal goes smoothly, Oracle and Sun will be able to jointly market Sun’s servers and Oracle’s database software, presenting a powerful joint offering in the increasingly competitive server market. This will help the firms rival major players such as HP and new entrant Cisco Systems.