Why Europe Won't Stop Oracle from Taking Over Sun

By BW Staff and wire reports

Oracle's proposed takeover of Sun Microsystems hit a speed bump in Europe, but it's unlikely to throw the acquisition off course.

On Sept. 3, European Union regulators launched an antitrust probe into Oracle's (ORCL) tentative deal of Sun Microsystems (JAVA), saying they wanted to make sure Oracle was committed to developing Sun's rival open-source database software, MySQL.

EU approval is now the main stumbling block for the $7.4 billion deal, which has already been cleared in the U.S. by the Justice Dept. The European Commission now has until Jan. 19, 2010, to make a final decision to clear the deal or block it. The EC often presses companies to make changes that eliminate antitrust worries, such as selling off parts of their business.

EU Competition Commissioner Neelie Kroes said regulators needed to examine the effect of a deal "when the world's biggest proprietary database company proposes to take over the world's leading open-source database company." The commission wants assurances that open-source software developers would be able to continue to develop products based on the open-source MySQL database and that customers will be able to choose between open-source and proprietary software.

Oracle Can Spin Off MySQL The EU's move seems likely to delay the acquisition, rather than derail it. The database software that regulators are focusing on represents a relatively small piece of Sun's overall business, and it competes with Oracle's offerings only in certain markets. Sun's revenues for the fiscal year that ended June 30 were $11.4 billion, and MySQL accounted for less than 5% of that amount. Experts believe that Oracle could spin off or sell the business to satisfy regulators if necessary.

Even if Oracle keeps MySQL, it's unlikely to invest much in improving the product, says the CEO of a Silicon Valley software company who recently worked at Oracle. "Any innovation there will just be choked off," he says. As an independent company and under Sun, MySQL was winning deals Oracle otherwise would have, and Oracle doesn't want the software to become a full-blown threat to its flagship 11g database, the executive says.

Oracle declined to provide detailed comment on the EU's decision to launch a probe into the acquisition. The company issued a statement that the European Commission "has decided to seek more information" by conducting what the commission calls a "phase two" inquiry. Oracle also pointed out that the U.S. Justice Dept. had signed off on the deal, as had Oracle shareholders.

Oracle is the leading player in the $21.4 billion database market, but it does have significant competition. Its primary rivals are IBM (IBM) and Microsoft (MSFT), and the three together account for about 80% of the market. Still, many corporations appreciate having open-source alternatives, because they're typically less expensive. Ed Boyajian, chief executive of EnterpriseDB, a company that sells the PostgreSQL open-source database, says customers of MySQL have been approaching him since Oracle's Sun acquisition was announced, fearful that the software would be neglected or even discontinued by Oracle. "People are scared of getting locked into the Oracle sales machine, with its audits of their software usage and sales increases," he says.

Indeed, open-source databases are taking off in many corporations and now present a threat to Oracle. Japanese telecommunications giant NTT (NTT), for instance, says it expects to save $10 million a year by using PostgreSQL rather than Oracle's software in some of its computers. "This software is now good enough for our mission-critical computing systems," says Takeshi Tachi, senior manager at NTT's open-source software center.

While getting MySQL as part of the Sun deal would eliminate a feisty competitor for Oracle, it's unlikely that the software giant would risk scuttling the deal over this issue. Amid the uncertainty over regulatory approval, Sun lost market share in the computer server business to IBM and Dell (DELL) in the second quarter, according to market researcher Gartner. If push comes to shove, Oracle will likely set MySQL free.

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