Oracle Corporation is a multinational computer technology company which concentrates in generating and marketing enterprise software products, specifically database management structures. Sun Microsystems is company which specializes in marketing computers, information technology services, and computer software. Oracle Corporation intends to acquire Sun Microsystems to make it part of its subsidiaries. The merger between the two giant companies would benefit the shareholders of both the companies in several ways. This essay will discuss how the merger between Sun and Oracle will be beneficial to Oracle shareholders, Sun shareholders, the financial condition of both corporations, profitability potential of the merger, and the potential pitfalls.
The Impact on Oracle Shareholders:
Oracle Corporation has been a 100% software company with no experience handling hardware or software-hardware incorporated solutions. This is a good reason for Oracle shareholders to worry about the company’s acquisition of Sun Microsystems considering its future profitability. The investors will be concerned about the corporation’s intention buying the financially weak business. To maintain the shareholders’ loyalty, the Oracle’s management needs to apply the dividends approach. This will boost the market stock of Oracle Corporation, hence make the shareholders feel secure, (Morgan, 2009).
The acquisition of Sun Corporation by Oracle Corporation will provide a window for market development to Oracle Corporation. Oracle will be able to widen its market scope globally by incorporating its database management systems business with information technology services, standard-based computing infrastructure, and storage business from the Sun Corporation. The broadened scope of business operations will boost the profit ratios of Oracle Corporation. This will in turn raise the annual dividends ratio offered by Oracle to its shareholders, thus making them befit from the acquisition. The merger will increase the Oracle’s market share by accessing a wider customer base which will guarantee the company’s stability to the shareholders.
Impact of Sun Shareholders:
The Sun Microsystems Corporation has experienced a financial hard time in the recent economic recession. This has lowered the corporation’s stock market significantly, worrying its shareholders. A continuous decline in the stock market of Sun Microsystems would indicate that the company would collapse in the near future. Therefore, the margining of Oracle Corporation and Sun Microsystems is a relief to the Sun’s shareholders in that their investments will not be put at risk of disappearing. This is seen in the joy that filled the Sun’s shareholder on the announcement of the acquisition, which made the stock price to rise to from $6 to $8, (Paul, 2009).
Oracle Corporation intends to pay for the acquisition of Sun Microsystems by $7.4 billion cash rather than by shares. This will make the stock price of Sun to rise by at least 37 percent which will be for the benefit of the shareholders of Sun Corporation. The Sun Microsystems’ shareholders will be released of the burden of worrying about the company’s potential bankruptcy or the uncertainty of the corporation’s future.
Oracle Corporation has quality staff and experience in the database management business. The merger with the Sun Microsystems will integrate these skills with those of the information technology personnel at Oracle Corporation. This will yield an improved management and productivity in the merged business and the Sun’s shareholders will be in a position to realize higher dividends from their investments that they used to get before the merger, (Paul, 2009).
Financial Condition of Oracle and Sun:
The financial condition of Sun Microsystems is shrinking due to the effects of the current global economic recession. This puts the company at the risk of future bankruptcy. On the other hand, Oracle’s financial condition seems strong and enduring probably due to the fact that it is the biggest company offering database management systems world wide.
Profitability of the Merger between Oracle and Sun:
The resultant company from the merging of Oracle and Sun Microsystems may be more profitable than the individual companies due to various reasons. First, the market share of the resultant company will be greater than that of Oracle of Sun. This will increase the stock price of the new company and the subsequent fiscal profits.
The emergent company will have the popularity of Oracle and Sun Microsystems combined together and this will market the emergent company to greater height than those initially with either Oracle of Sun. In addition, the long debate over the merging of the two companies has increased the popularity of both of them, and so when they merge, they will attract a vast range of customers from all over the world, (Oracle, 2009).
The resultant company will be like a supermarket which has many businesses under one roof. This is because the database management systems business of Oracle will be integrated with the software development and information technology services business from Sun Microsystems to come up with a giant company offering all these services together. The customer population will improve drastically as those customers who initially bought from Oracle alone will now buy the Sun’s products as well. Likewise, Those customers who initially bought Sun’s products alone will now by the Oracle’s products as well. This integration of customers will boost the average sales of the emergent company, making it more profitable than Oracle or Sun independently.
The elite management and production personnel from Oracle Corporation will come together with the similar from Sun Microsystems, and they will form a pool of experienced effective staff that will make the emergent company’s productivity and the subsequent profitability to soar high in the market.
The existing branches of Oracle Corporation combined with those of Sun Microsystems will present a wide network of branches of the resultant company globally and this will save the resources needed to create new branches. This will contribute to the fiscal profits much higher than if the constituent companies had continued to run independently.
The combined efforts of Oracle and Sun Microsystems in the new company will reduce the competition between them and concentrate the competition on the other similar businesses in the market. This will make the emergent company more powerful in the software, hardware, and information technology market which will translate into higher profits, (Morgan, 2009).
It will also become easier to access funds and valuable assets for new development since the sources that were used by Oracle and those that were used by Sun Microsystems will be merged making a wider door to resources and equity needed in the development of the company.
Potential Pitfalls of the Merger:
Though the merger between Oracle and Sun Microsystems has several benefits to both sides, it is not without some demerits that come with it. First, the acquisition might make Oracle to experiences losses through the funds required to complete the acquisition. This is especially so considering that they are other giant companies fighting for that chance to merge with Sun Microsystems such as IBM.
There may be also threats to the emergent company concerning management over who will take the upper positions and how long the merge will last. After the global economic recession improves, the Sun Microsystems might start threatening to withdraw from the coalition and start operating independently again.
The merger can damage the companies performance due to the important time wasted on the acquisition deal. The merging process also creates a mood of uncertainty which affects the company’s productivity and the consequent profitability. The merging venture is also faced by many other challenges including the disagreement among the shareholders where some shareholders may be supporting the move, while some may be opposing it. This threatens the share market of the company and the stock price goes down. The merging process may be also be influenced by the ruling authorities and business policies. For instances, Oracle faces opposition from the European Commission which makes the deal to last longer than expected.
Conclusion:
Oracle Corporation’s, the database management business, merger with the Sun Microsystems, a software company, is beneficial to both the corporations in that Sun is relieved from the risk of bankruptcy, while Oracle gets diversified market scope and market stock as well as a vast range of customers.
References:
Oracle Corporarion (2009) : Website: http://www.oracle.com/us/corporate/index.html?origref=http://www.oracle.com/corporate/about.html. Retrieved on 9th March, 2010.
Sun Microsystems Corporation (2009). Website: www.sun.com/corpRetrieved on 9th March, 2010
Morgan P. (2009). The A Register. Website: http://www.theregister.co.uk/2009/07/16/sun_votes_for_oracle/ Retrieved on 9th March, 2010
Paul (2009). InfromationWeek. Website: http://www.informationweek.com/news/government/enterprise-apps/showArticle.jhtml?articleID=222400062 Retrieved on 9th March, 2010
Sun and Oracle (2009). Website: http://www.sun.com/third-party/global/oracle/ Retrieved on 9th March, 2010
