George S. May Business Blog

Oracle buys Sun for $7.4 billion; it’s not what you know, it’s who you know

Oracle said Monday [20 Apr 2009] it has entered into a definitive agreement to buy Sun Microsystems in a deal worth $7.4 billion. Oracle said it will buy Sun Microsystems common stock for $9.50 per share in cash, a 42% premium from Friday’s closing price of $6.69.

This deal came less than 2 weeks after IBM had ended its talks with Sun and seems to be virtually the same deal that IBM had on the table. Reports are that IBM lowered its offer from $10 per share to $9.40, Sun scoffed and the deal fell apart. So the question now is, why Oracle and not IBM?

I’ve heard quite a few people claim that it was just a case of IBM getting out bluffed. IBM walked away one too many times, thinking that no one else would want to touch Sun Microsystems and instead Larry Ellison, failing-company-cherry-picker extraordinaire, swooped in and got the same deal that IBM left on the table. But the fact that IBM had spent weeks in due diligence and Oracle was able to get it done in 48 hours cries that there may have been more behind IBM not getting the deal.

If you ask me, the fact that Sun founder, Scott McNealy, and Larry Ellison (pictured left to right) are long-time pals certainly couldn’t have hurt the deal. Take a look at this interview from 2003. Right at the beginning of the interview McNealy, in referring to Larry Ellison, says “He’s batman, I’m Robin”.

We all know that Larry Ellison is a very intelligent and successful man, but I will say, this latest “bite” may prove to be a bit more than Ellison is able to chew. See, no matter how much it wants to fancy itself as a software company, Sun is a hardware company. Oracle is not. For that, you can bet your money that this transition will not be as quick and painless as the actual act of getting the deal done between the two was. And while we’re on that point, 48 hours? Really? Were they really able to cover all bases, work out all the kinks, in a weekend? Hmmm, what was the last deal that was done in a weekend? Oh yeah that’s right, the Bank of America – Merrill deal! That one worked out pretty well…

Some say that there were anti-trust issues in the IBM deal that would have taken weeks to clean up, while the Oracle deal was described as being much “cleaner”. Yeah, possibly, but if you ask me, what sealed the deal was actually a trust issue. Larry Ellison has a great track record and a close friendship Scott McNealy. As I’ve said in the past, the saying “it’s just business, not personal” is bunch of you know what. Let this be a lesson that EVERYTHING is personal. Whether you run a softball team, a small company or an entire country, there will be a time when your success will be in the hands of another person. Should that person be a “friend” of yours you will instantly have a leg up.

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