The EU's Christmas gift to Oracle

The EU's protracted investigation into the Oracle acquisition of Sun threatens to gift Sun to Oracle at a substantial discount.

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.

Tags:
Tech Culture
About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

    Join the discussion

    Conversation powered by Livefyre

    Don't Miss
    Hot Products
    Trending on CNET

    HOT ON CNET

    How well do you know your surge protector?

    Whether you're looking to add more outlets, or want to add a layer of protection between your gear and the outside world, here's what you need to know.