Sun Shines on Oracle

Oracle Corp. (ORCL) offered to buy Sun Microsystems (JAVA) for more than $7 billion in a surprise move on Monday after rival IBM (IBM) dropped its pursuit of the struggling server maker.

The $9.50 per-share bid, including cash and debt, values the Santa Clara, California-based company at $7.4 billion and offers a 42% premium to Sun’s Friday closing price. Sun’s board, which had turned down IBM’s offer of $9.40 a share, unanimously approved the Oracle deal.

The acquisition will bring Oracle Sun’s signature Java technology and the Solaris operating system software. The two platforms are already widely used by key Oracle products. Oracle can now diversify more into the storage and computer hardware space from its original database foothold to compete directly with giants like IBM and Hewlett-Packard (HPQ).

Oracle’s big-ticket acquisition spree since 2005 made it the world’s second-largest software maker by the time the economic slowdown started taking a bite out of IT spending. The Sun deal is expected to close this summer and add at least $1.5 billion to Oracle's operating profit in the first year. It would also be more profitable than the Redwood Shores, California-based company’s PeopleSoft, Siebel and BEA acquisitions combined.

Sun shares were up nearly 36% to $9.09 in morning trade while Oracle shed more than 3% to $18.43 on the NASDAQ.

Read the full analyst report on ORCL