Oracle buys Sun Microsystems for $7 billion

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Oracle Corp plans to enter the computer hardware market by buying Sun Microsystems Inc for more than $7 billion.

The announcement on Monday surprised many Oracle watchers, who believed 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 against 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.”

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 second fiscal quarter on December 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 Sun jumped 35.7 percent to $9.08 in morning Nasdaq trading, while Oracle shares fell 3.7 percent to $18.36. Shares of IBM, which did not immediately return calls for comment, fell 1.8 percent to $99.49 on the NYSE.

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 equipment.

Source: Routers