RealTime IT News

EC May Block Oracle/Sun Merger

Numerous reports have indicated that Oracle is expecting a formal objection from the European Commission on Competition to its planned $7.4 billion acquisition of Sun Microsystems, inviting the possibility that the European Union could derail the merger.

If such an objection is issued from Brussels, then the next step would be to formally block the deal from going through, even though it involves two American firms and has been cleared by the U.S. Department of Justice.

The complaint could come within days, and there is a chance that one side will back down. Earlier reports indicated that Oracle CFO and Co-President Safra Catz had been uncooperative with EC investigators in her interviews.

Calls to Oracle for comment were not returned.

As the Financial Times noted, there has been an effort between the European and U.S. regulators to work closely in recent years. The last time the EC blocked a merger of U.S. companies was in 2001, when General Electric attempted to purchase Honeywell.

That deal never happened, but since then, regulators in Washington and Brussels have tried to work closer together to avoid such problems. Between 2004 and 2008, only two of the 1,665 deals notified of an objection have been blocked.

Brussels has blocked only two proposed mergers since 2004, both of them involving European companies.

The EC's objections stem over Sun's ownership of the open source database MySQL. EC officials expressed concern that Oracle might stifle the database, even though Oracle CEO Larry Ellison has repeatedly said the opposite would happen, that Oracle would invest in MySQL, and MySQL's former CEO Marten Mikos sent EC Commissioner Neelie Kroes a letter saying Oracle could not stifle MySQL if it wanted to, and he had faith Oracle would indeed support the database.

Thus far, the only American objection to the merger has come from Richard Stallman, open source pioneer and opponent of commercial software, and consumer activist Ralph Nader.

However, Oracle has apparently been dragging its feet. Two weeks ago, commission officials told Reuters that Oracle had not provided them with evidence that the deal would not cause competition problems, and was not willing to discuss possible remedies. Catz was cited specifically by name.

The deal is now in its seventh month, a painfully long time for Sun. The wait has left the company in limbo with no leadership. CEO Jonathan Schwartz hasn't been seen in public since the deal was announced, and there is no long-term planning going on because Sun figured it would be an Oracle company by now.

In the meantime, IBM is picking off Sun customers as fast as it can. Ellison has said that Sun is losing $100 million a month as Oracle waits for approval of the deal.

So what could happen? Oracle might very well have to shed MySQL, said Martin Reynolds, research vice president with Gartner.

"They might ask Oracle to dump MySQL if they don't trust Oracle to properly manage MySQL," he told InternetNews.com. "It doesn't seem like MySQL will be a deal breaker. They could do the Sun merger without MySQL, but I'm sure it's a piece of the valuation that Oracle will have to revisit."

Oracle agreed to purchase Sun for $7.4 billion in April. Since then, the company has lost considerable amounts of business, which would no doubt affect the valuation. Oracle would likely not value MySQL at the $1 billion price tag Sun paid for the firm, but it would still knock the price down, doing more damage to Sun's stockholders.

MySQL was a Finnish company, and Reynolds figures there's a European company that stands to benefit from MySQL being cut loose.

"One of the things we've noticed about the EU is the complaint always seems to have been written by some company for them. They don't go chasing these things if there isn't some money at the end of the road. So there may be a European company that might buy MySQL," he said.

The final decision is expected in the next few days.