Highlights

Announced: April 20, 2009 (Press Release)
Expected Close: Q3 2009
Termination Date:
Terms: Oracle will acquire Sun common
stock for $9.50 per share in cash

Total Value: $7.4b
Website(s): JAVA & ORCL
Industry: Software / Hardware

Filings, Reviews & Approvals

Pending EC (M.5529) September 3, 2009 - Deadline July 30, 2009 - Filed

Completed HSR August 20, 2009 - Cleared June 25, 2009 - Second Request May 27, 2009 - Re-Filed May 5, 2009 - Filed Shareholder Meetings   SUN ORCL SH Date July 16, 2009   Record Date June 5, 2009   Proxy Mailed June 10, 2009   SEC June 5, 2009 - Definitive Proxy Statement Filed May 11, 2009 - Preliminary Proxy Statement Filed

Timeline

August 21, 2009 (8:10a) - HSR Clearance

The Department of Justice cleared this transaction under HSR yesterday, August 20, 2009.

As discussed previously, the European Commission review is expected conclude without major delays next month. This approval is anticipated within the current review period which end on September 3, although there is clearly a possibility of a brief extension into mid/late-September in this case.

Nevertheless, this deal is expected to be completed before the end of September 2009.


July 31, 2009 (9:25a) - EC Review Details

The companies filed a formal merger notification with the European Commission yesterday (7/30). The EC has assigned case number M.5529 to its review of this transaction. The provisional review deadline is September 3, 2009.

As discussed previously, the delayed EC filing in this case is generally viewed as positive, as pre-filing discussion between the companies and the regulatory will likely result in approval without delays. If a review extension does occur for this deal, it will probably be a very short extension, which would result in approval by the third week of September at the very latest.


July 16, 2009 (2:20p) - JAVA Shareholder Approval

JAVA shareholders have approved the merger agreement with ORCL.

There are no updates to report regarding the pending HSR review or the EC review which has not yet started. Presumably, the companies are still in the process of pro-actively dealing with the European Commission and will submit the formal notification within the next few weeks, if not days.

There continues to be no expectation from this publication that this deal will be severely hampered by regulatory concerns, despite some mild indications to the contrary. A successful deal completion remains anticipated before the end of September 2009.


June 29, 2009 (1:55p) - EC Status

According to several reports over the last few days, the companies plan to file a merger notification with the European Commission on an undetermined day this month. This in itself is naturally no major revelations.

However, the companies (from ORCL's side) are projecting a close before August 31, despite the late EC filing and pending HSR second request review. Granted, ORCL is arguably the most efficient deal closer in recent memory, even when major regulatory issues surface. Nevertheless, a close in August seems somewhat overly enthusiastic even for ORCL.

While there continues to be absolutely no expectation of major delays due to the FTC and/or EC, it will come as no surprise if one or both regulators force the close to be pushed into September of this year.


June 29, 2009 (7:45a) - HSR Second Request Issued

The Department of Justice issued a second request under HSR for this transaction on Friday, June 26, 2009. ORCL has issued the following statements with respect to the second request:

"We've had a very good dialogue with the Department of Justice and we were almost able to resolve everything before the Second Request deadline. All that's left is one narrow issue about the way rights to Java are licensed that is never going to get in the way of the deal. I fully expect that the investigation will end soon and not delay the closing of the deal this summer."

This somewhat unusual disclosure relating to the HSR process must be taken at face value given the extremely strong perception that this deal lacks major competition issues. As this merger agreement literally materialized as a result of perceived lesser regulatory issues than a JAVA-IBM merger, it will be a major surprise if the DOJ ultimately takes a negative view of this combination.

In short, this publication strongly agrees with ORCL's assessment of the HSR situation and anticipates DOJ clearance within the next two to three months, at most.


June 25, 2009 (10:15a) - Status Report

As of this entry, there is no indication of HSR clearance for this deal. However, as the second waiting period technically ends today, the result of the current review will likely not be known until tomorrow morning.

Once again, there is a fairly strong chance of a second request (+/-20%) here despite the relative lack of major competition issues. As the current FTC/DOJ has shown quite clearly, no deal is immune from a second request, particularly tech mergers such as this one.

Also, this deal is still not an active case with the European Commission. If HSR clearance is obtained today, it is presumed that the companies will submit the required notification with the EC very quickly. If a second request is issued, the EC filing will likely be delayed for a short period.


June 8, 2009 (8:15a) - Definitive Proxy / HSR Notification Re-Filed

JAVA filed the definitive proxy statement for this transaction with the SEC on June 5, 2009.

The JAVA shareholder meeting will be held on July 16, 2009, for shareholders of record as of June 5, 2009.

The proxy discloses that the HSR notification associated with this transaction was withdrawn and re-file with the FTC on May 27, 2009. The second waiting period expiration date is therefore June 25, 2009.

As discussed in previous reports, the HSR development is absolutely no surprise for this deal given the direct middleware overlap and the assumed presence of a increasingly intensified antitrust environment. Our original assessment of the HSR will be referred to again, as the following seems to be particularly relevant at this point:

"JAVA has become a top-tier middleware player as its products are designed to adapt to non-enterprise applications, whereas ORCL's database products are primarily utilized at the enterprise level. This distinction should be the primary point of focus in the companies' initial HSR application and will likely be approved by the FTC/DOJ on these grounds."

In short, the withdrawal/refiling in this situation is not perceived as strictly negative, as it is highly likely the FTC simply requires more data specific to the companies' middleware applications and the markets in which the products compete.

However, as with any HSR re-filing situation involving complex products/services, this deal is clearly subject to a second request. The current chances of this occurring are believed to be relatively low: 15-20%. Naturally, a second request will prevent the companies from completing the transaction before the end of next month.

The proxy also notes the the EC notification is currently in the process of being completed and filed.


June 5, 2009 (12:30p) - HSR Status

As of this entry there is not indication of HSR clearance or further action from the DOJ, from the companies or external sources.

As there is far too much evidence to suggest some DOJ interest here, it is imprudent to suggest that an announcement of HSR clearance is imminent, despite reports to the contrary. The initial HSR review for this deal could literally go either way as has been discussed in previous updates.

Hopefully, the companies will respond to inquiries or issue a press release shortly to confirm HSR clearance. Until that happens, it must be assumed that the DOJ investigation is continuing in one form or another.


June 2, 2009 (4:25p) - HSR Status

According to published reports, there is indication that the Department of Justice will not issue a second request in its review of this transaction. If these reports are accurate, the HSR waiting period will end by midnight tomorrow (6/3).

Again, there are no major antitrust issued associated with this combination, so HSR clearance without any delay will not be terribly shocking. However, it must also be pointed out (again) that a segment overlap does exist in the middleware product area, so DOJ consent is not a given for tomorrow.

If indeed the HSR review does end tomorrow, this should effectively allow the companies to complete the transaction before the end of July, rather than by mid-August as previously anticipated. This assumes that the companies will file the EC and other necessary non-U.S. notifications within the next two to three weeks. Failure to submit these regulatory filings in this time frame could very well result in the deal close slipping beyond the end of next month.


May 14, 2009 (8:30a) - Preliminary Proxy Statement Filed

JAVA filed the initial proxy statement for this transaction with the SEC on May 11, 2009.

The proxy discloses that the required HSR notification was filed with the DOJ and FTC on May 5, 2009. The waiting period expiration date is therefore Wednesday, June 3, 2009.

It will again be noted that this combination is far less subject to antitrust interest than the originally anticipated JAVA-IBM combination. Although there is certainly a chance of some minor HSR delay due to the broad "middleware" overlap (as well as potentially increased FTC/DOJ activity in general), there remains absolutely no reason to anticipate an extremely long antitrust review here, even in the unlikely event of a second request. In a worst-case scenario, HSR clearance can be expected no later than early/mid-September.

The proxy also notes that European Commission consent will be required, along with other "numerous foreign jurisdictions." Details of these jurisdictions will be obtained and posted in the near future.

The current closing projection for this deal is early/mid-August, 2009.


April 23, 2009 (9:00a) - Additional Analysis

Industry and non-industry reviews tend to confirm this publication's initial impression that this deal will have little difficulty obtaining HSR clearance despite the major impact it promises to have in the information technology industry as a whole. Where overlaps are concerned, there appears to be absolutely no concern for FTC/DOJ interest.

Indeed, the primary threat of regulatory interest among analysts appears to be the concept of the new administration choosing this as a precedent-setting antitrust matter. This was also raised as possibility initially, but is currently perceived as relatively unlikely given the actual lack of legitimate antitrust issues and, again, ORCL history of success in dealing with federal regulators. Links to some relevant articles on these matters have been provided below.

One niche overlap worth noting is Enterprise Role/Rights Management (ERM) software, where JAVA has established a fairly solid presence and ORCL has been essentially a secondary player to this point. This is a relatively new middleware software niche and therefore one which may be of interest to regulators. However, there is clearly no current competition issue associated with this niche, so no major problems are likely to develop.

In a more general sense, the "middleware" software segment could be the only legitimate area where the DOJ/FTC might want to take a look at the deal. Again, JAVA has become a top-tier middleware player as its products are designed to adapt to non-enterprise applications, whereas ORCL's database products are primarily utilized at the enterprise level. This distinction should be the primary point of focus in the companies' initial HSR application and will likely be approved by the FTC/DOJ on these grounds.

The bottom line here seems quite clear: this will be an extremely complimentary merger where the vertical aspects can not be viewed as anticompetitive despite the overall impact the combine product lines are likely to have. As noted previously, many of JAVA's products are already running along with ORCL's database products, so nothing will be changed to end users accept they will be paying for one product instead of two. This can not be viewed negatively by regulators.

The chances of a second request here are pereived as minimal: +/-5%. The chances of an HSR withdrawal/refiling must be seen as slightly higher than average, although still relatively low: +/-20%.


April 20, 2009 (12:10p) - Initial Analysis

Unlike the JAVA-IBM combination, the potential JAVA-ORCL is primarily vertical in nature with an established partnership that has entrenched JAVA's products as the primary platform in ORCL's iconic database and middleware applications. Add to this the "Oracle factor" in dealing with federal regulators where it has proven itself to be arguably the most savvy company in terms of overcoming regulator issues, and the result is a deal which will in all likelihood encounter no significant delays.

Below is a timeline chart for ORCL's recent major deals covered by this publication. Note than in the memorable Peoplesoft deal ORCL successfully defended the deal against the DOJ in the federal courts.

Transaction	Length (Days)	$	HSR	SEC	Misc
BEA Systems (BEAS) - Oracle Corp (ORCL)	93	8.5b	30	56	EC 34
Siebel Systems Inc. (SEBL) - Oracle Corp. (ORCL)	144	5.9b	55	72	EU 35
$Hyperion Solutions Corp (HYSL) - Oracle (ORCL)	44	3.3b	15		GFCO 30
Retek Inc (RETK) - Oracle (ORCL)$	34	631m	<15>
PeopleSoft (PSFT) - Oracle Corporation (ORCL)$	578	7.5b	455		EU 379)

The initial impression here is that any HSR delay would be primarily educational in nature -- which is not entirely out of the question as the current FTC/DOJ is clearly indicating a increased interest in the more complex mergers.

Although it is not very difficult to recognize the mostly vertical and overall non-threatening competitive aspects of this deal, it would not be terribly surprising if federal regulators chose to take some time in going through the technical aspects of the companies respective products and services -- particularly on ORCL's side.

Nevertheless, this deal technically looks clear of any major issues and will probably close in well under six months, even in the event of an HSR re-filing or second request. The current closing projection is late-August 2009.


April 20, 2009 (8:50a)- JAVA-ORCL Definitive Agreement Announced

ORCL and JAVA have announced a definitive agreement in which JAVA shareholders will receive $9.50 per share in cash.

At this time there is no indication, nor expectation, that IBM will consider a counter-offer for JAVA.

Research and analysis of the JAVA-ORCL combination will be posted shortly.


April 16, 2009 (9:20a) - Status Report

According to a multitude of reports over the last several hours, JAVA has indicated (off the record) that it may be willing to re-enter negotiations with IBM with respect to a possible merger agreement. The reports suggest that JAVA's primary concern is IBM's commitment to closing any formal merger agreement, which is somewhat perplexing given IBM's stature and history of successful deals.

Nevertheless, if the reports are accurate it can be assumed that JAVA is now fully aware of its predicament and, with no sign of another interested party, has little choice but to attempt to reach an agreement with IBM. Unfortunately, it is extremely unlikely that JAVA will receive an offer from IBM above $9 at this point and may be forced to settle for somewhere in the $8.50 range.


April 14, 2009 (11:10a) - Status Report

This entry will simply note that there have been no developments in this situation for more than a week and no viable indication that the companies intend to revisit a possible merger agreement.

This file will remain open until the end of this month.


April 6, 2009 (3:50p) - Status Report (Addendum)

As of this entry there is still no definitive indication from the companies that negotiations have failed. However, it appears abundantly clear that no formal agreement will emerge in the immediate future as widely anticipated just last week or that JAVA has any semblance of leverage in drawing IBM back into negotiations under its terms.

The overall analytical sentiment at this point seems to be that JAVA has created a situation similar to the YHOO-MSFT debacle of last year, and this publication wholeheartedly agrees with these comparisons. The failure of JAVA to negotiate an acceptable agreement with JAVA will almost certainly have similar long-term affects (YHOO has remained as less than half the MSFT offer for months), if not worse, on the company if it chooses to maintain it current (presumed) posture or expects a third-party to enter the picture.

In short, JAVA has a very short time frame in which to come to terms with the concept that any IBM offer at this point is acceptable and is risking major long-term difficulties if it chooses to move forward on its own. It is almost inconceivable that the company is unaware of its precarious position under the circumstances. Assuming the company is indeed aware of the repercussions of allowing IBM to walk away, it must be believed that a fairly solid chance (+/-65%) of a formal agreement still exists above the $9 level.


April 6, 2009 (8:25a) - Status Report

According to multiple reports that have surfaced since yesterday (4/5), JAVA has rejected IBM's initial offer and IBM is subsequently considering withdrawing from negotiations. Naturally, neither company has issued a statement on the negotiation proceedings as of yet.

In light of this probable development, JAVA is expected to decline substantially in the market and will likely not see recovery for quite some time. Thus, JAVA as very little leverage in attempting to draw a higher offer from IBM or a third party and must eventually consider accepting a sub-$10 offer in the very near future.

In short, even if JAVA does reject IBM at this time, it remains perceived that the companies are more likely to reach an agreement than not over the next several weeks.


April 3, 2009 (8:30a) - Status Report

According to countless reports, IBM is on the verge of making a formal offer for JAVA valuing the company at $9.55 per share. At the time of this posting, neither company has issued a statement with respect to this anticipated transaction.

If indeed IBM submits an offer of $9.55 or above, it is expected that JAVA will accept and enter into a formal agreement. There is simply no indication that JAVA intends to attempt to move forward as an independent entity at this point in the company's history.

It will also be noted that it is also believed that a formal merger agreement will result in a transaction length of at least six months as overlaps in the mainframe server segment will almost certainly require divestitures by the Department of Justice. However, this aspect of any deal has already been factored in by the companies and should present no major problems with respect to a merger being successfully completed before the end of this year.


March 19, 2009 (10:15a) - Initial Analysis

As of this entry, no formal agreement has been reached between these two companies.

If an agreement is reached, the proposed merger would definitely draw some DOJ/FTC interest for two reasons. First, there is a very clear overlap and competition issue in the area of Unix servers. Combined, a SUN/IBM entity would command roughly 70% of this market, leaving Hewlett Packard in a distant second with a market share of approximately 25%. Obviously, this will be unacceptable under any circumstances and would require divesting one of the companies' product lines in this segment. More than likely, SUN's Unix server division would be divested under this scenario.


Second, this deal would be the first major information technology transaction to be reviewed by the new DOJ/FTC leadership. As such, it would serve as the introductory merger for an administration that is much more focused on technology development than the previous administration. The "educational" aspects of this combination alone would very likely result in a fairly long HSR review, as it would allow the regulators to examine a multitude of high-end IT markets associated with IBM (which has a long history of run-ins with both U.S. and European regulators) and SUN.

Assuming a formal agreement emerges, a deal length of at least six months can be anticipated based on the information available.

Additional research and analysis will be posted in the event of further developments.

Transaction	Length (Days)	$	HSR	SEC	Misc
Cognos (COGN) - IBM (IBM)	81	5b	11	n/a	Comp Canada 9 Investment Canada 71 EU 42
SeeBeyond Technology (SBYN) - Sun Microsystems (SUNW)	59	387m	30	20	GFCO 10
Ascential Software (ASCL) - IBM (IBM)	50	1.1b	17	10
Storage Technology (STK) - Sun Microsystems (SUNW)	91	4.1b	30	34	EU 40
Rational Software Corp. (RATL) - IBM (IBM)	78	2.1b	30	13	EU 35
Cobalt (COBT) - Sun Microsystems (SUNW)	80	2b	18	22
CrossWorlds Software, Inc. (CWLD) - IBM (IBM)	74	129m	14	15
Sequent (SQNT) - IBM (IBM)	75	810m	30	44	EU 34