The announcement on Monday surprised many Oracle watchers, who believe the company can boost profitability at Sun's software businesses but were unsure if it can be as successful with Sun's hardware unit amid stiff competition from IBM, Hewlett-Packard Co, Dell Inc and new entrant Cisco Systems Inc.
"It's an out-of-the-box, left-field type of a deal because Oracle is buying a predominantly hardware business," said Jefferies & Co analyst Ross MacMillan. "The push-pull of the deal is the uncertainty of the hardware business with the earnings accretion of the software business."The deal would make Oracle the world's fourth-largest maker of servers, with the No. 2 slot in the high-end of the market, which was worth about $17 billion last year. It is already the world's No 2 maker of business software after IBM.
Oracle will pay $9.50 a share for Sun, which values the high-end server and software maker at about $7.06 billion, based on 743 million shares outstanding as of the end of its fiscal second quarter on Dec. 28, according to Sun.Sun had previously rejected IBM's offer to pay up to $9.40 a share, according to sources with knowledge of the matter.
Shares of Santa Clara, California-based Sun jumped 36.3 percent to $9.12 in Nasdaq trading, while Redwood City, California-based Oracle shares fell 1.7 percent to $18.74. Shares of IBM, which declined to comment, fell 0.32 percent.Oracle President Safra Catz said on a conference call that Oracle intends to make the hardware division profitable. Sun's top-selling products are high-end servers and storage gearCatz said the acquisition, which the companies expect to close this summer, will add at least 15 cents per share to earnings in the first full year after closing.
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