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Oracle to buy Sun for $7.4B after IBM dropped bid — fewer antitrust issues seen

April 20, 2009
/ Mergers/Competition/Investigations

As the media reported this morning, Oracle Corp. will buy Sun Microsystems Inc. in a cash deal the company valued at $7.4 billion after IBM abandoned its bid to buy the networking equipment maker. Full story here.

The IBM talks may have been derailed by antitrust issues since the two companies overlap in several areas. In tape-based data storage, for example, together IBM and Sun would hold 52 percent of a $3.1 billion market. The companies had been working out the terms of a commitment from IBM that it would see the deal through even if antitrust regulators raised objections. The deal with Oracle may 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 systems.

Several blogs that cover this industry said that “the ghost of antitrust lawsuits” with the DOJ, and consent decrees that IBM signed in 1956 and amended in 1969 to govern its behavior, seemed to haunt Big Blue. According to the IT Jungle blog (which posted before the Oracle-Sun deal was announced) “the very governments that will be looking at the deal are big users of IBM mainframes and Unix iron from Sun, and if there is only one guy controlling those two platforms, competition will cease. Right now, only the high-end Unix server market puts any competitive pressure–albeit somewhat indirectly–on the mainframe market. And it would not be surprising to see very big mainframe and Unix shops get involved if IBM tries to do the deal. Perhaps with a lawsuit arguing over the establishment of the relevant market for determining with IBM would have a monopoly in high-end servers and therefore be subject to regulation again”. Full post here.

Antitrust attorneys we spoke with this morning (not involved in the deal) indicated a Hart-Scott-Rodino 2nd request is certainly in the cards based on their analysis. It appears the deal has been fast tracked to close by the summer.

Oracle turned to Latham & Watkins’s San Francisco corporate chair John Newell on the deal. Newell was assisted by partners Daniel Wall, Karen Silverman, Joseph Yaffe, Laurence Stein, and associate Michelle Bushore. Oracle also tapped San Belanga and Ed Nortrup at the Silicon Valley IP M&A boutique GTC Law Group.

Sun was advised by Wilson, Sonsini, Goodrich & Rosati. The team was led by partners Martin Korman and Larry Sonsini and included partners Todd Cleary and Scott Sher. It has relied on Wilson Sonsini in the past. In 2005, the firm represented Sun in its $4.1 billion acquisition of Storage Technology Corp.

We’ll keep you informed as the deal progresses.

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