More E.U. Roadblocks in Sun-Oracle Deal (ORCL, JAVA)

There are reports from the Financial Times that were also just noted on CNBC that are almost baffling.  It seems that the European Commission may issue a formal objection to the Oracle Corp. (NASDAQ: ORCL) buyout of Sun Microsystems Inc. (NASDAQ: JAVA).  The reasoning is that Oracle has apparently refused to offer any concessions to European regulators.

While a formal set of objections would not constitute a formal merger blockage, that is the first real step to a formal block.  This is also not set in stone yet and does not mean that either Oracle nor the E.U. will offer concessions.

The European Union has a serious issue with reality.  Normally, we would not take such a strong side like this, but Sun Microsystems cannot adequately compete in the business world of 2009 and beyond.  The company has been hamstrung because its core Java pr is effectively free to license per its old business model and its servers are high-end and there are now many more alternatives in a “good enough computing” environment where IT-spending dollars are tight.  The company has been unable to post consecutive profits, which is the single and primary mandate of all businesses here.  The E.U. seems confused over the difference between a charitable .org and a business entity.

If this deal is ultimately blocked, Brussels should have to make up the difference to Sun’s shareholders with a check.  Some regulation is good, but the boys in Brussels are just confused here. Sun Microsystems shares were down about 8% in the after-hours session, but now shares are down over 2% at $8.16 in the after-hours trading session.

Oracle has already noted how it is losing money on the deal right now and how it is getting push-backs on its orders for Sun products until that merger is completed.  Maybe it just doesn’t make financial sense for Oracle to offer any concessions at all.

JON C. OGG
NOVEMBER 3, 2009