Oracle Deal DOJ Delays Simply an “Irritation” for Sun

Oracle certainly would like to complete its acquisition of Sun Microsystems as soon as possible, but the US Department of Justice (DoJ) scrutinising the deal has, in effect, told the enterprise database giant: “Not so fast.”

A deadline for the DoJ to file an “all-clear” affidavit passed after 30 days at the end of business last Friday. Approval would have allowed the proposed acquisition of Sun for $7.4 billion (£4.4 billion) to proceed to the next levels of scrutiny: by the Federal Trade Commission and the Securities and Exchange Commission.

The DoJ, the highest-ranking law enforcement agency in the US, is empowered to study the potential abuse of antitrust law in corporate mergers and acquisitions – especially those involving multibillion-dollar companies such as Oracle and Sun.

But Sun, which has been bleeding dollars for nearly 10 years in the new IT economy and has the most to gain from the acquisition, does not appear to be worried about federal scrutiny. In fact, the company told eWEEK the delay was simply an “irritation”.

“This is not unexpected,” a Sun spokesperson who asked not to be identified told eWEEK. “The new [Obama] administration is looking [more closely] at all mergers and acquisitions, by necessity. They’re looking deeply into all aspects of the economy.

“This is too big a transaction for them to simply let go through on the first pass.”

A combined Oracle-Sun corporation would have a market capitalisation of about $115 billion (£68.8 billion). At the present time, Oracle’s market cap is about $107.6 billion (£64.4 billion); Sun’s is just below $7 billion (£4.2 billion).

Experts: Plenty of separation in product lines

IT analysts and industry people contacted by eWEEK said they believe that Oracle and Sun have sufficient separation in their product lines that a block on the acquisition plans isn’t warranted.

Oracle is the world leader in enterprise database and IT middleware tools, and produces little or no hardware; Sun is a multifaceted IT systems company that makes enterprise networking software—nearly all of which, including Java, is of the open-source variety—as well as enterprise servers, storage arrays, digital tape storage machines, networking switches, thin-client terminals and a long list of other hardware products.

One of the main areas of overlap, certainly, is in databases: Sun is the de facto leadership owner of development of the open-source MySQL franchise, while Oracle’s prime-time products are its proprietary Oracle i series, Siebel and PeopleSoft enterprise databases. With the addition of MySQL, Oracle would own even more than its lion’s share – estimated at about 75 percent – of the parallel enterprise database market.

The DoJ may well see some potential antitrust problems there, but it also should be noted that there are plenty of other contenders that are quite profitable in this market, led by Germany’s SAP and the open-source Ingres product.

Java licensing called into question

Another bone of contention has come to the fore, however. Reuters reported over the weekend that something rather unexpected – Java licensing – had been at the heart of the 26 June holdup.

An Oracle attorney told the news agency that the two sides were “almost able to resolve everything” ahead of the agency’s decision to extend its investigation.

Java licensing is tricky to untangle, because up until November 2006, Java was a proprietary programming language owned in its entirety by Sun and licenced accordingly. From 1995 to 2006, Sun charged for licensing for use of Java code and for affiliated services; now it gives away the code free of charge under a choice of open-source licences, but still charges for implementation, ongoing maintenance and other services.

Potentially, this could be sensitive for Oracle, because the most important intellectual property owned by Sun is the Java franchise. More than 90 percent of the world’s cell phones and connected portable devices use Java networking software to run on web-based networks, and a growing percentage of the world’s “smartcards” – an estimated 40 percent, according to IT research companies – use embedded Java chips to store personal, health and business information that can be accessed by card readers.

Java works as well in handheld devices as it does in king-size enterprise servers and storage arrays. So its influence on worldwide software development is huge is huge.

It is possible that the DoJ sees Java as having some antitrust issues. A spokesperson for the DoJ refused comment on this topic yesterday, citing the ongoing investigation.

At the time the merger was announced back in April, Oracle chief executive and founder Larry Ellison noted that “all of our middleware is based 100 percent on Java” and said his company has “invested more than anybody else in Java technology in terms of dollars over the years, and we intend to invest – and accelerate our investments – going forward”.

Will the DoJ call a halt to this acquisition? Not likely, according to a group of IT insiders contacted by eWEEK.

“If MySQL is the main problem, Oracle can deal with that,” said one analyst who asked not to be identified. “Java would be stickier, but I don’t think there’s a real problem with that at all. Sun’s Java and Oracle’s databases fit hand-in-glove – they don’t compete.

“I just think the DoJ is being very careful, especially with a new, much-more-aware President in the White House.”