Oracle to buy Sun Micro for $7.4 bn

Oracle Corp agreed to buy Sun Microsystems Inc for about $7.4 billion in cash, stepping in after International Business Machines Corp’s talks to purchase the server maker collapsed.

The per-share price is $9.50, 42 per cent more than what Sun closed at April 17. The acquisition probably will add $1.5 billion to Oracle’s operating profit, excluding some items, in the first year, the companies said today in a statement.

The purchase will give Oracle Sun’s Java programming language and Solaris operating system software, which works with its database programs. The takeover also marks the company’s entry into the server-computer market, allowing it to challenge IBM in that business and sell more products for corporate data rooms that run networks and websites.

“The industry is going toward data centers,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon, who rates Oracle shares “outperform” and doesn’t own any. “This is Oracle’s move to continue to consolidate the industry.”

Sun, based in Santa Clara, California, rose $2.40, or 36 per cent, to $9.09 in Nasdaq Stock Market trading at 9:52 am New York time. Oracle, based in Redwood City, California, dropped $1.06 to $18.

IBM was in takeover discussions with Sun in the past month, with negotiations breaking down over price,according to people familiar with the situation. IBM spokesman Ian Colley declined to comment on Monday.

Sun’s shares had gained almost 80 per cent the day reports of the talks with IBM surfaced, only to drop 25 per cent after the two sides stopped negotiating.

Java technology lets developers write programs that work across operating systems and on a variety of devices. There are about 6 million Java developers, according to Sun. The software has been installed on 800 million desktop computers and it powers 2.1 billion mobile devices.

“Java is the single most important software asset we have ever acquired,” Oracle CEO

Larry Ellison said today in a conference call. “Oracle will continue to expand the Java business,” he said.

Sun’s Solaris operating system competes with Linux and Microsoft Corp’s Windows software. Sun boosted software sales by 21 per cent in its latest quarter and said in January that it projects revenue from those products to reach about $600 million a year. That compares with Oracle’s software sales of $17.8 billion in its latest fiscal year.

Orders for Sun’s server and storage computers, accounting for more than half its revenue, are slowing. Sun has reported losses in three of the past four quarters, and analysts predict another loss in the current period.

In September, Oracle announced its first hardware product, a computer made by Hewlett-Packard Co pre-loaded with Oracle’s database programmes.

The machine is designed to make it easier for companies to add information to their networks and configure it to suit their needs.

The purchase is Oracle’s third largest after its $10.3 billion takeover of PeopleSoft Inc in 2005 and $8.5 purchase of BEA Systems Inc last year. Oracle, the world’s second biggest software maker, has spent almost $34.5 billion on purchases since 2005 to buy 52 companies, making it the most acquisitive software company in the world.

Oracle is entering new markets as it seeks to reach $50 billion in revenue by 2012. The company may offer pre-configured servers containing programs geared to specific industries, such as retail and banking, Oracle President Charles Phillips said on the call.