Seeking its software jewels, Oracle buys Sun for $7.4b

Oracle has ended the uncertainty over Sun Microsystems with a surprise announcement that it will buy the former Silicon Valley titan for $7.4 billion.

The move takes Oracle into the hardware business for the first time, but CEO Larry Ellison said the chief attraction was Sun\'s software assets.

The $9.50 per share offer represents a 42% premium on Sun\'s closing stock price on Friday. The bid is five cents lower than IBM\'s initial offer, but IBM  revised  its offer, leading Sun to reject its bid.

With the acquisition, Oracle will now own two key Sun software assets - Java and Solaris. Oracle\'s fastest growing business, Oracle Fusion Middleware, is built on Java, while Solaris is the main platform for Oracle\'s largest business, the Oracle database.

Ellison said  Java was "the single most important software asset we have ever acquired"
 - including the high-profile acquisition of PeopleSoft four years ago.

The Sun acquisition will contribute over $1.5 billion to Oracle\'s non-GAAP operating profit in the first year alone, increasing to over $2 billion in the second year, Oracle president Safra Catz said.

But Sun recorded a net loss of $1.9 billion over the past 12 months, despite sales of $13.3 billion, analysts told  the BBC. 

"This would make the Sun acquisition more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined," she said.

The move will allow Oracle to engineer integrated systems, consisting of both hardware and software, Ellison added.

Microsoft CEO Steve Ballmer told  Reuters he was "very surprised" by the news. "I\'ll have to think about it," he said.