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Oracle gets Sun after IBM failure

ORACLE Corp pounced on Sun Microsystems Inc in a US$7.4 billion deal yesterday after rival IBM Corp abandoned its bid to buy Sun, a server and software maker that had a 27-year run as Silicon Valley's brash independent.

Redwood Shores, California-based Oracle said it will pay US$9.50 in cash for each Sun share. The price represents a 42 percent premium to Sun's closing stock price of US$6.69 on Friday, and is nearly twice what Sun was trading for in March, before word leaked that IBM and Sun were in buyout negotiations. Net of Sun's cash and debt, the transaction is valued at US$5.6 billion, Oracle said.

Price dispute

IBM had offered to buy Sun for US$9.40 per share, but takeover talks fell apart this month in a dispute over price and the extent to which IBM was willing to see the deal through an antitrust review.

Oracle expects the purchase to add at least 15 cents per share to its adjusted earnings in the first year after the deal closes. The company estimated Santa Clara, California-based Sun will contribute more than US$1.5 billion to Oracle's adjusted profit in the first year and more than US$2 billion in the second year.

Sun, which invented the Java programming language used to develop applications for Websites and mobile phones, had been reluctant to sacrifice its independence, even as it reported big losses. Despite billions in sales - US$13.3 billion over the last four quarters - the company has not been able to turn a consistent profit, losing US$1.9 billion in the same period.

Analysts have long said the company can't stand on its own and many were skeptical it would be able to find another buyer after talks with IBM broke down.

A deal with Oracle might not be plagued by the same antitrust issues, since there is significantly less overlap between the two companies. Still, Oracle would be able to use Sun's products to enhance its own software.

Oracle's main business is database software. Sun's Solaris operating system is a leading platform for that software. The firm also makes "middleware," which allows business computing applications to work together. Oracle's middleware is built on Sun's Java.

Sun's takeover is a reminder that a few missteps and bad timing can cause a star to come crashing down.

Sun pioneered the concept of networked computing, the idea that computers could do more when lots of them were linked together.



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