What if Oracle’s buyout of Sun falls through?

With Oracle’s proposed acquisition of Sun Microsystems stalled by European Union deliberations, industry dignitaries offered mixed perspectives recently on the ultimate fate of the deal and what it could mean for Sun technologies if the deal falls through.

The $7.4 billion merger is stalled over EU concerns over the fact that the commercial database giant would own the open source MySQL database, which is now Sun property. And the stalled buyout has left Sun’s fate up in the air, with customers and employees uncertain as to what will happen — perhaps leading to an erosion of Sun’s values as customers and employees begin looking elsewhere.

“There’s been a pause or lull in the market regarding Sun products because Sun customers have been waiting” on the merger, said Gartner analyst Ray Valdes. There is a lack of clarity on which products Oracle will invest in, he said. (Oracle has offered some guidance, emphasizing intentions to continue technologies such as Java, MySQL, Sun hardware, and the OpenOffice application suite.)

Competitors are certainly noticing the effects: “I just wouldn’t want to be one of those customers with uncertainty and ambiguity,” said Tim O’Brien, Microsoft’s senior director of platform strategy. Meanwhile, the layoffs at Sun keep coming, with 3,000 job cuts announced recently.

Sun’s options if Oracle walks away

But what if Oracle walks away from the Sun buyout rather than accept conditions the EU might impose to protect MySQL? A failure to consummate the buyout would leave Sun in a weakened state but could in fact provide more clarity on the future of the Sun portfolio, said Valdes. Right now, Sun cannot say much about what it is doing, he said. (Oracle’s Larry Ellison has stated publicly that he has every intention of completing the Sun buyout. Neither Oracle nor Sun would comment for this story.)

Still, if Oracle does walk away, it’s likely Sun would then look for a new buyer rather than try to remain independent, said RedMonk analyst Stephen O’Grady. The recession of 2008-09 hit Sun at the worst possible time, and Oracle provided a safe haven in troubled times when it agreed to buy Sun last April. Since then, Sun’s position has gotten worse, so it would still need a rescuer.

Not that finding another owner would be easy: “They are well down the road to considering themselves part of Oracle, so the logistics of finding another buyer are difficult,” he noted — especially because Sun reportedly is losing $100 million a month, O’Grady said. “The economic implications for Sun, if the deal falls through, are not good,” he said: A new buyer would not pay as much as Oracle did.

But Sun’s assets still have value even if no one ends up buying Sun as a company, O’Grady said. He would expect someone to buy Sun’s Sparc business, and he would expect its Java, MySQL, GlassFish, and x86 businesses also to be sold — perhaps to different companies.

If the buyout fails, MySQL has been reasonably independent, but Sun’s other businesses would either have to find ways to go forward independently or find another buyer, said Florian Mueller, an early investor in MySQL. (He opposes Oracle’s acquisition of MySQL, though he supports Oracle’s acquisition of Sun if MySQL is spun out.)

However, O’Grady does not believe the merger will fail. Both Sun and Oracle are committed to the effort, he said, though he is surprised deliberations have dragged on as long as they have (the acquisition was announced in April 2009). O’Grady said he expects Oracle to “stick to its guns” in its insistence that it will not divest itself of MySQL just to get the merger approved by the EU.

Customers’ contingency options

Whether the deal ultimately goes through or not, the ambiguity about the fate of Sun’s products has left many to consider alternative support options. “I would expect the majority of Sun customers have contingency plans in place in the event the acquisition does fail,” said O’Grady.

For customers, users of products such as MySQL have alternative choices for support such as Percona, O’Grady said. But users of products such as Sparc hardware will “have to wait and see where Sun ends up being.” Some customers might move to another hardware platform while others would wait and see, he said.

Still, Mueller believes that if Oracle were to walk away from Sun, Sun’s technologies would not end up unsupported or no longer developed, he said. “The brands and the technology are too strong to disappear,” he said.

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