At the end of October, FT Alphaville came across some strange goings on in Oracle’s pending $7bn acquisition of Sun Microsystems.
Oracle had withdrawn its Russian antitrust filing, an unexplained move prompting speculation the deal was about to unravel.
With proceedings snagged in Brussels after EU Competition Commissioner Neelie Kroes voiced monopoly concerns, there was understandable investor unease at the withdrawal of the filing to the Russian anti-monopoly regulator.
Oracle, however, declined to offer a formal explanation to its shareholders or to the media. Days later, the FT reported that Oracle was braced for a formal objection from the European Commission.
And when that objection comes, shareholders of both companies, but especially those of Sun, would do well to examine the various caveats attached to the deal.
The Sun-Oracle acquisition agreement makes it clear that Oracle is not required to complete the deal unless it has specific approval from the EC, along with a string of other competition authorities.
And while both companies are left sweating over what, for example, the Turkish antitrust regulators are thinking, the agreement leaves Oracle under no obligation to dispose of any assets in order for the deal to be passed. Sun is effectively left blowing in the wind.
Both companies have a lot to lose if the situation drags on. Oracle has said it is losing $100m a month during the hold up as rivals such as HP and IBM exploit the uncertainty to poach its customers. Sun meanwhile has its own problems, recently laying off 3000 people.
It is difficult to avoid the conclusion that Sun’s lawyers should have pressed Oracle for far tighter conditions on the competition clearance front. Sun shareholders would be feeling rather more comfortable now if the risk of forced disposals rested with Oracle - rather than Oracle retaining the option of simply walking away.
Related links:
Weak Points of Sun Deal Come Out in Europe - Deal Professor
Oracle braced for EU objection on Sun deal - FT
Oracle’s Sun deal snagged in Brussels - FT
