In a closed-door hearing in Brussels this week, software maker Oracle could face a tough time winning approval for its proposed takeover of Sun Microsystems
By Matthew Newman
(Bloomberg) — Oracle (ORCL), the world's second- largest software maker, faces an "uphill battle" in persuading European Union antitrust regulators to approve its planned $7.4 billion purchase of Sun Microsystems Inc., lawyers said.
The European Commission, the EU's competition authority, has threatened to block the deal because of concerns that Oracle might be able to eliminate Sun's MySQL database product as a competitor, according to an EU document. Oracle will counter the EU's case at a closed-door hearing this week in Brussels.
"It's an uphill battle for Oracle," Charles van Sasse van Ysselt, a competition lawyer at NautaDutilh in Brussels, said in an interview. "It's unlikely that the commission will change its view following an oral hearing because usually all the arguments have been made and extensive evidence has been sent."
Oracle Chief Executive Officer Larry Ellison said in September that he won't sell MySQL, which is a key part of the Sun acquisition. The commission's delay in approving the deal is costing Santa Clara, California-based Sun $100 million a month, he said. Oracle, based in Redwood City, California, will present its case on the first day of the hearing starting tomorrow.
Eben Moglen, a Columbia University law professor and director of the Software Freedom Law Center, and officials from Ericsson AB, the world's largest maker of wireless network equipment, will present arguments on behalf of Oracle on the second day of the hearing, people familiar with the case said. Oracle rivals SAP AG and Microsoft Corp., the world's largest software maker, will also have an opportunity to discuss their concerns about the merger during the hearing.
Oracle will argue that the commission hasn't proved how Oracle can raise prices for its products by removing MySQL as a competitor, according to the people, who declined to be identified because the EU hearing is confidential. The company will also say that the commission is using an aggressive legal theory by saying that MySQL is a "maverick" competitor that can prevent Oracle from boosting prices, the people said.
Gaye Hudson, a spokeswoman for Oracle in the U.K., didn't respond to a voice-mail message or e-mail seeking comment. Jonathan Todd, a commission spokesman, said the EU doesn't comment on oral hearings. Ilyana Guzman, a spokeswoman for Stockholm-based Ericsson, said she wasn't immediately able to comment.
The commission began an in-depth review of the takeover in September and is scheduled to rule by Jan. 27. The probe followed lobbying by Oracle competitors, including SAP and Microsoft.
The commission said Oracle would hurt competition by acquiring "total control" of MySQL's source code and intellectual property. Oracle could change the terms of MySQL's open-source licenses, restricting the ability of other companies to develop competing products.
"It's been a surprise for a lot of investors that the European Union has put up these objections — the companies said they expected the deal to close in the summer," said Yun Kim, an analyst at Broadpoint AmTech in Greenwich, Connecticut, who recommends buying Oracle shares.
Oracle fell 57 cents to $21.91 yesterday in Nasdaq Stock Market trading. The shares have gained 24 percent this year. Sun, which have more than doubled this year, added 3 cents to $8.49 yesterday.
'Bit of a Show'
Lawyers have criticized EU oral hearings because they often don't advance arguments and reveal new evidence. They also give opponents a forum to criticize deals. Oracle won't be allowed to directly question the commission's case team or the complainants. An EU hearing officer, who is independent of the case team, ensures that Oracle has a right to respond. The final ruling on the case is made by the commission.
"Oral hearings tend to be a bit of a show," said Becket McGrath, a lawyer at Edwards Angell Palmer & Dodge UK LLP. "They're not useless, but I don't think an oral hearing will turn around a case."
Companies can get approval for a transaction after receiving a so-called statement of objections. TomTom NV, Europe's largest maker of car-navigation devices, won approval last year for its acquisition of digital-mapping company Tele Atlas NV after receiving a statement of objections.
Oracle has told the commission that MySQL isn't a competitive constraint because of the technical differences between its databases. Oracle's software is designed for large companies' back offices, while MySQL makes an easy-to-use program for Web site developers, according to an EU document in the case. MySQL's program is based on freely distributed code.
In cases where a maverick is cited, the commission should show that the company's technology disrupts competition and is new to the market, the people said. MySQL's technology isn't complex, which explains its popularity for Web sites, and it was developed in the mid 1990s.
The commission said MySQL, with about 60,000 daily downloads, is the most deployed open-source database and its "competitive significance is much greater than its very small market share based on revenue would suggest."
To contact the reporter on this story: Matthew Newman in Brussels at email@example.com