This story has been updated. See below for details.
Oracle, not IBM, will be buying Sun Microsystems.
Oracle and Sun announced Monday that they have entered into a definitive agreement under which Oracle will acquire Sun common stock for $9.50 per share in cash. That puts the value of the transaction at about $7.4 billion, or $5.6 billion net of Sun's cash and debt.
Oracle President Safra Catz said in a statement:
We expect this acquisition to be accretive to Oracle's earnings by at least 15 cents on a non-GAAP basis in the first full year after closing. We estimate that the acquired business will contribute over $1.5 billion to Oracle's non-GAAP operating profit in the first year, increasing to over $2 billion in the second year. This would make the Sun acquisition more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined.
Sun made its name as a supplier of server hardware during the dot-com heyday, but its best-known technology is software: the Java programming language. In the Monday morning announcement, the two companies said that Java is the "most important software Oracle has ever acquired."
An early take from my colleague Larry Dignan at ZDNet:
My hunch is that (Oracle CEO Larry) Ellison saw the possibilities of integrating hardware and software with Oracle's Exadata database machine. Ellison boasted that the Exadata machine has seen strong demand on Oracle's earnings conference call.
Sun's board has unanimously approved the transaction. The deal is expected to close this summer, subject to Sun stockholder approval, regulatory approvals, and closing conditions.
Last month, reports surfaced that IBM wanted to buy Sun, but Sun didn't like the terms that Big Blue was offering.
Update, 5:59 a.m. PDT: On a conference call to present the deal to investors, Catz emphasized that Oracle expects to make money from its Sun property.
"We intend to ensure that it is profitable," Catz said, having noted that Oracle will combine the software assets quickly after closing the deal. "We believe we will be able to run Sun at substantially higher margins."
In its most recent quarter, Sun reported a net loss of $209 million, or 28 cents a share, on revenue of $3.22 billion. Revenue was down 11 percent year over year.
Also on the call, Ellison said that Java is "critical" to Oracle's middleware and that the company's middleware offerings are on track to be as big as its database business. Sun's Solaris software, he said, is "by far best Unix technology available on market," though he also spoke well of Linux.
Sun Chairman Scott McNealy and CEO Jonathan Schwartz joined Oracle's team on the call.
"We're thrilled to be acquired by Oracle," McNealy said.
Historical footnote, 6:35 a.m. PDT: Ellison didn't always see Sun as a desirable takeover target. In 2003, when Oracle was in the throes of trying to acquire PeopleSoft, Ellison said that buying Sun would be a "bad idea." At Oracle's annual shareholder meeting that October, Ellison said: "I don't think Oracle should be in the hardware business, so I don't think you'll see us buying any hardware companies."
Update, 9:50 a.m. PDT: Sun's shares jumped about 35 percent when the stock market opened Monday to $9.07, following Friday's close at $6.69, and have been holding at about that level through the morning.
Oracle's shares opened about 7 percent lower, at $17.77 versus Friday's closing price of $19.06. The stock has since risen to about $18.60.