Would Oracle Ever Abandon Its Bid for Sun?
Would Oracle ever abandon its bid for Sun? And if it did, what might happen to Sun? Thomas Weisel Partners analyst Doug Reid weighs both of these questions in a note to investors today, and his answers are worth considering in light of reports that the European Commission may object to the deal. Though Reid believes Sun’s (JAVA) acquisition by Oracle (ORCL) is still likely, he does see a few other possible scenarios as well. Among them:
- A delayed EC review process of the current proposed acquisition, which may end in a rejection left unchallenged by Oracle
- A renegotiated deal with Oracle, which would likely exclude MySQL and therefore involve a renegotiated deal price
- An offer by IBM (IBM) to buy Sun at a discount to the Oracle offer following a rejection by the EC of the current Oracle deal
- A scrapping of the deal by Oracle
Interestingly, Reid feels this last possibility isn’t as disastrous as it might sound. Sun has $1.8 billion in cash, and while its latest results weren’t at all pretty, they did feature improving gross margins.
“Our current thesis on [Sun] assumes the announced [Oracle] acquisition will close, but risks have increased,” Reid wrote. “There remains a risk that the European Commission will provide a ‘statement of objections’ to [Oracle’s] planned acquisition of [Sun] based on concerns regarding [Oracle’s] plans for the MySQL database which [Sun] currently owns. The deadline for such a decision is January 19, 2010 but it is possible that the EC will state objections before the end of the year.”
Elaborating, Reid notes that “Although [Oracle] could likely reduce the risk of a statement of objection–and thus of a delayed or perhaps failed bid for [Sun]–by supplying to the EC an argument to explain why the [Oracle-Sun] deal will not adversely impact competition in the database market, our assumptions around [Sun’s] valuation include increased risk regarding the completion of the [Oracle-Sun] transaction at $9.50….While we believe the currently proposed acquisition by [Oracle] is the most likely outcome for [Sun], we believe other scenarios remain possible, although each is made more difficult by the continued uncertainty around Sun’s fate, and the resulting erosion in customer confidence in Sun.”