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Sun MicrosystemsFinal CaseApril 27, 2014
Recommendation: The recommendation for Oracle is to acquire Sun Microsystems and to do so by offering a higher per share vale of somewhere between a maximum of $12.00-14.00. The original offer from Oracle for Sun Microsystems to buy the company is $7.38 B or $9.50 a share. Since the technology industry is in flux and is a $2.8 trillion industry (hardware-15%, software and services-80%, and storage and peripherals 5%) it would make sense that Oracle make a higher offer. Oracle is currently the largest enterprise software solutions provider, but acquiring the related business of Sun Microsystems would be a boost on the hardware front as well as seen as a success by the public. The question of whether or not Oracle should acquire Sun Microsystems is answered with a simple yes because of the addition of hardware, the tech industry growth, the strategic fit of Sun, and the current shares being undervalued. The important determining factor is what Sun Microsystems is worth. The current price is $6.69 and the very conservative discount is at $6.28. The forecast is too conservative and needs to be updated for the numbers to be true to themselves and look better. The price that Oracle should walk away from the negotiation table with Sun Microsystems is about $14.00 per share. It is this high for many numeric reasons as well as qualitative reasons that will follow. Oracle should not offer above this price because at that point they are better off using HP hardware or even making their own products.
Discounted Cash Flow:The discounted cash flow is a valuation method, which will estimate the attractiveness of Sun Microsystems as an investment opportunity to Oracle. This analysis uses the future free cash flow projections and discounts them using WACC to arrive at the present value. This is then used to evaluate Sun Microsystems as a