Oracle faces in-depth EU probe over Sun purchase

Investigation in contrast with the decision of US regulators.

Oracle Corp’s $7.4 billion acquisition of Sun Microsystems Inc was put on hold when the European Commission opened an in-depth investigation two weeks after US regulators approved the deal.

There are “serious doubts” about competition in the market for databases if Oracle acquires Sun, the European Commission in Brussels said in an e-mailed statement today.

“The commission has to examine very carefully the effects on competition in Europe when the world’s leading proprietary database company proposes to take over the world’s leading open source database company,” Competition Commissioner Neelie Kroes said in the statement.

The investigation contrasts with the decision of US regulators to clear the deal on August 20. Oracle competitors including SAP AG and Microsoft Corp lobbied for an extended probe, arguing the deal could drive up prices for databases.

Redwood City, California-based Oracle acknowledged the extended probe in a statement today. Oracle has said the purchase would add $1.5 billion to operating earnings, excluding some items, in the first year.

“Closing of the transaction is subject to certain conditions, including clearance by the European Commission,” Oracle said.

Oracle shares, which closed at $21.77 on Wednesday, traded in Germany at the equivalent of $21.83 at 12.59 pm in Frankfurt. Santa Clara, California-based Sun Microsystems, which ended the trading day in the US at $9.32, was lower at the equivalent of $9.15.

The commission said the database market is “highly concentrated” with Oracle, International Business Machines Corp and Microsoft controlling about 85 per cent of the market.

Oracle, the world’s second-largest software maker, would gain MySQL, the world’s most popular open-source database, which Sun bought last year. Oracle is the market leader in proprietary databases, while Sun’s MySQL database product is the leading open-source database, the commission said.

The maker of one company that makes database software derived from MySQL, Tuusula, Finland-based Monty Programme, said the EU decision indicates the regulator “understands” the issues in the case better than the US.

“I’m positively surprised to see the EU had the strength to do this even if the Department of Justice approved the deal,” said Henrik Ingo, chief operating officer of Monty Program AB.

The EU said its initial probe, which lasted 25 working days, showed that Oracle’s databases and Sun’s MySQL compete directly in many sectors of the database market. “MySQL is widely expected to represent a greater competitive constraint as it becomes increasingly functional,” the commission said. “The commission’s investigation has also shown that the open source nature of Sun’s MySQL might not eliminate fully the potential for anti-competitive effects.”

The MySQL database, downloaded more than 50,000 times a day according to Sun’s website, powers many of the biggest websites, including Wikipedia, Facebook and Google Inc’s YouTube.

Oracle Chief Executive Officer Larry Ellison would also gain Sun’s Java programming language and Solaris operating system, which work with its top-selling database programme.

Ellison said Java was the main reason behind his decision to buy Sun. Jonathan Todd, a commission spokesman, said the regulator had no concerns with Java licensing.