The EU's Christmas gift to Oracle

The European Union undoubtedly believes it is taking a principled stance against the specter of antitrust as Oracle attempts to buy Sun Microsystems. As I've written, however, the EU's delay threatens to gift Sun's customers to IBM and other competitors while doing little to no good for its MySQL business. Worse still, the EU may be paving the way for Oracle to drop its bid, only to return to scoop up Sun's software assets at a rock-bottom price.

Think this is far-fetched? Consider the following (increasingly likely) scenario:

Let's say the EU holds up Oracle's acquisition of Sun by four months. In the technology world, this is an eternity. The lack of clarity around the business has already contributed to two woeful quarters from Sun, with Q4 revenue down 31 percent year-over-year.

Sun's revenue drop is bad, but it will almost certainly get worse the longer the EU drags out its "in-depth investigation." How much worse? Perhaps 50 percent. Heck, perhaps as bad as 80 percent. IBM and HP, in particular, have been crowing about hundreds of Sun customers jumping ship in the wake of Oracle's beleaguered acquisition. Thirty-one percent may come to seem like the good ol' days.

The sad thing is that the EU will almost certainly bow to the inevitable and withdraw its objections. It will look silly for holding up a deal on the specious grounds of MySQL's health (it's doing just fine, thank you, and isn't in danger of being lobotomized by Oracle, which likely will prove to be a better manager of this asset than Sun was).

The EU, unfortunately, is likely not to notice just how silly its stance was, and we'll see other companies go through the same rigamarole.

Regardless, Oracle isn't a silly company, and isn't going to pay top dollar for a diminished asset. It would not be surprising to see Oracle drop its offer by as much as 50 percent, claiming it's actually a premium as revenues are down by more than that. (There is precedent for this in Oracle's various offers for PeopleSoft.) Sun, ruined by this point, would have little choice but to capitulate.

All of which would make Oracle's acquisition of Sun's software business even better than before. As Larry Augustin noted, Oracle's $7.4 billion offer for Sun effectively valued the software at $0.00. Getting a better price on the hardware business and still buying the software business for $0.00? That sounds like a sweet deal.

After all, Oracle is primarily interested in Sun's software assets. Getting Sun for $3.7 billion would make it even easier to quickly flip Sun's hardware business to Fujitsu or HP at a profit, which some speculate is waiting in the wings to buy Sun's hardware business and which I noted back in March was considering a joint-bid on Sun with Oracle.

"Angelic" may not be the word most often associated with Oracle. "Shrewd" is more apt, and low-balling Sun after the EU scuppers its value is shrewd business indeed.

EU competition commissioner Neelie Kroes probably means well by holding up Oracle's acquisition of Sun, but the only group she's helping with the investigation is Oracle, which may end up getting Sun for half what it planned to pay. I'm sure Ellison will give her a ride on his yacht for her troubles.

Follow me on Twitter @mjasay.

[Asa_Dotzler_]

Matt, which consumer is being harmed here? Who cares if Oracle pays less for Sun? As you said, MySQL will be fine, some customers will move from one giant company to another giant company, some third giant company will get Sun's hardware platform, and Oracle will get a better deal on Sun's software business.

I'm just wondering who it is you're looking out for here? Who is getting screwed? I can't find a loser here except those people who've been been foolish enough to bet their investment portfolio on Sun -- a company that's obviously been flailing for about a decade.

[Renegade Knight]

Shareholders care. They approved the buy out at one price. ideally a lesser offer would go back to shareholders for approval. I'd still vote no.

[odubtaig]

Oh for crying out loud! It's a merger between two large international corporations who both do databases which is close enough that it's going to require approval in every territory the merger is going to affect.

This procedure was always going to happen. Sun know it. Oracle know it. This isn't a system in which the DoJ does an investigation but the EU can just do what America tells it. This isn't 'harming' the business, it's part of the business and the price that must be paid to ensure that what happened with all those banks, Worldcom and Enron, all due to not enough oversight, doesn't happen again. Yes, everyone has to pay the price just so the few criminal companies aren't overlooked.

This is the price of doing business at this scale. I do hope your company never does a merger on this scale or we'll never hear the end of it.

[pokiri]

Hmm. By the time Oracle gets cleared, Sun's business will be NULL in server space. But i think EU doesn't care about that.

[ExSunGuy]

Matt - you've got it backwards... if you look at the (now) public timeline, Oracle was interested in the Solaris & Java assets well before the IBM deal was first rumored, MySQL was just an added bonus. On the other hand, the Euros care about MySQL more than anything else (hence the EU letters sent out requesting opinions on MySQL, nothing else). This gets resolved in the next 3-6 weeks - Oracle spins MySQL out in to a foundation (or something similar) and the deal is done... the only thing in the way is Larry's ego...(and even he will let this one go for the $ involved and the chance to drive the Java train)

[mscritsm]

The Oracle/Sun merger will be helped by the recession. Because of the recession, most businesses are delaying new server purchases anyway. But if the merger drags beyond one product cycle, it will be the end for Sun hardware.