ACF- Report Group 9.docx - Applied Corporate Finance Case...

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Applied Corporate Finance Case Assignment Sun Microsystems Group#7 Syeda Hijab Raza Maria Ghaffar Hasan Farukh Hanzla Ahmed Khan
Table of Contents Introduction…………………………………………………………………… Industry Analysis ……………………………………………………………… Problems related to acquisition………………………………………………… Exhibit Analysis………………………………………………………………… Is Sun Microsystems a good strategic fit for Oracle? …………………………... Approaches used to value Sun Microsystems……………………………………
Introduction The case revolves around the acquisition of Sun Microsystems by Oracle. Margaret Madison, a member of Oracle’s corporate development team, is dealing with this acquisition decision. In early 2009 Oracle put in an offer of $7.38 billion to acquire Sun Microsystems i.e. paying $9.5 per share. While on the other hand, Oracle’s competitor in the market, IBM, is also looking to acquire Sun Microsystems and is offering $9.4 per share. This merger was crucial for Oracle because it would make Oracle a potential ‘Wal-Mart’ in the enterprise software industry. Oracle was a giant technology company which supplied software for enterprise information management. Its key products contained relational databases, middleware software, applications, and related services. Oracle’s objective was to become the Apple for business customers. Thus, it needs to essentially streamline its business. Oracle was only catering to the high-end customers with the best products. By 2000, Oracle sales had toppled $10 Billion. Despite a dip in sales during the dot-com bubble, Oracle had remained profitable. Oracle’s success continued into the new millennium. Between 2000 and 2005, the top line grew annually at 2.9%, operating profit increased at 5.5%, and the margin improved by nearly 400 basis points. Since 2005 Oracle had spent more than $30 Billion on over 50-bolt-on acquisitions. On the other hand, Sun Microsystems provided products, services, and support for building and maintaining enterprise network computing environment. Sun Microsystems was the pioneer of Java programming language that allowed it to cater to all sorts of consumers. Sun, like Oracle was also active in the acquiring business and was ready to splash $1 billion on MySQL AB. But that was hindered by the financial crisis. In 2008, the banking industry was on the brink of collapse and they were unable to borrow. Moreover, its sales dropped along with its goodwill
impaired and hence, it was prone to acquisition and the company management started to look for a potential suitor. The acquisition would combine Oracle’s dominant position in the software space with Sun’s expertise in hardware and networking. Oracle hoped to capitalize on Sun’s misfortunes by getting specific assets or the entire company at the deflated price. Merging with Sun Microsystems would add the prized Java, MySQL, and Solaris platforms to Oracle’s portfolio.

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