Overview
Whereas no U.S. agency opposed the Oracle-Sun merger of 2009-10 during the mandated waiting period before the completion of the transaction, EU objections to the merger (on the grounds that it might lead to market power and subsequent price hikes), delayed and, according to some, had the potential to derail the merger process entirely. In the end, however, despite EU objections, the merger proceeded and was completed in early 2010.
The Companies
Sun Microsystems, according to its website, is a provider of "a diversity of software, systems, storage, services and microelectronics that power everything from consumer electronics, to developer tools and the world's most powerful data centers." Among its core brands are the Java technology platform, a widely used open-source programming language, and MySQL, an open-source relational database management system.
[Note: Understanding the term "open-source" is key understanding the nature of these Sun products; open-source software (OSS) products are offered under a copyright license that allows any user to "study, change, and improve the software, and to redistribute it in modified or unmodified form." In addition to being open-source, limited versions of both of these core Sun products are available to consumers at no cost. The open-source and free nature of these primary Sun products clearly has implications in terms of how any merger of Sun with another technology company might affect market (barriers to) entry by potential competitors, market power and its attendant effects on prices, and the broader issues of competition and consumer welfare generally, which will be discussed later.]
Oracle Corporation “develops, manufactures, markets, and distributes and services database and middleware software as well as applications software designed to help its customers manage and grow their business operations”. Since both companies offer a similar range of products and services, Oracle’s proposed acquisition of Sun constituted a straightforward horizontal merger. As such, it was subject to regulatory review by the SEC, DOJ, and FTC.
Merger timeline
On April 19, 2009, Sun Microsystems, Inc. filed a "preliminary merger proxy statement" with the Securities and Exchange Commission (SEC) in reference to its intention to be acquired by Oracle Corporation, another Silicon Valley technology company. This horizontal merger was unanimously advocated by Sun's board of directors. In a letter to Sun stockholders found within the proxy statement (known by the SEC as a schedule 14A) Sun's Executive Vice President called the proposed merger "fair to, advisable and in the best interests of Sun and our stockholders" and recommended they vote for it. This was by no means a hostile takeover.
According to a section of the proxy statement entitled "background of the merger", the companies had, in fact, been in discussions over a possible merger since November 6, 2008, when Oracle CEO Larry Ellison first approached Jonathan Schwartz, President and CEO of Sun and "suggested a possible business combination transaction". A preliminary proposal was delivered on January 28, 2009. Months of negotiations between Oracle and Sun on the price and terms of the merger ensued until the merger agreement was executed and filed on April 19, 2009.
Among the "reasons for the merger" listed in the proxy statement were Sun's deteriorating revenues "as a result of declines in IT spending during the current economic crisis" which "particularly impacted Sun because Sun derives a significant portion of its revenues from the financial sector". Also mentioned is the increased competition Sun faced from competitors who "have increasingly used their size and services capabilities as leverage for competitive advantage" and who were more diversified than Sun. This would seem a straightforward efficiency rationale for a merger with Oracle.
Among the “potential negative factors” listed in the proxy statement are that “the merger will be subject to antitrust review in a number of jurisdictions which could delay or prevent the closing of the merger". This concern ultimately proved prescient.
Oracle and Sun filed pre-merger notification documents with the DOJ and FTC as mandated by the Hart-Scott-Rodino Act of 1976 (HSR Act), an addendum to the Clayton Act, on May 5, 2009. Shortly thereafter they filed merger notices for foreign jurisdictions, including the EU. After reviewing the proposed merger during the waiting period required by the HSR Act, the FTC concluded that the merger should be allowed. As a consequence, an "early termination notice" of the waiting period for the merger was granted on August 20, 2009.
Exactly two weeks later, on September 3, 2009, EU antitrust authorities launched a formal antitrust probe, putting the merger on hold. Then on November 9, 2009, the European Commission on Competition issued a formal objection to the merger on the grounds that it would adversely affect competition in the market for open-source SQL relational database management systems similar to MySQL, which Sun Microsystems owned. In an unusual move, that same day the Department of Justice (DOJ)'s Antitrust Division issued a statement in response to the EU objection.
On January 21, 2010, the European Commission dropped its opposition to the Oracle-Sun merger. On January 27, 2010, Oracle announced it had completed its acquisition of Sun, putting an end to a regulatory process that lasted nearly a year and spanned the globe.
Sources:
SEC Proxy Statement filed by Sun Microsystems, Inc., 19 April 2009
Early Termination Notice 20 Aug 2009
Chiappinelli, Chris. "EU Objection Stalls Oracle-Sun Merger." Manufacturing Executive 11 Nov 2009. Updated and republished in Managing Automation.
DOJ Statement on the EC Decision 9 Nov 2009.
EC Press Release clearing the merger, 21 Jan 2010.
Oracle Press Release 27 Jan 2010.
Rupley, Sebastian. "Europe OKs Oracle/Sun Deal, But Was the Time in Limbo Too Long?" Gigaom 21 Jan 2010.
