Finance
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Finance
Madison and her team at Oracle, a software company based in California, were planning on acquiring Sun Microsystems. Sun was also a software industry with previous works like programming Java language, Solaris OS, and MySQL database software. Merging, the two companies would create efficient enterprise software. However, Oracle had a competitor, the IBM Company. Each of the two companies laid down they offer to purchase shares from the Sun, and it was up to the management at Sun to decide on the suitable offer.
Oracle proposed a $7.38 billion or unit share of $9.50, while IBM offered a unit share of $9.40. Oracle stood at a better position of acquiring Sun since IBM, since their offer was more reasonable and negotiation plans with IBM had stirred up antitrust issues. Oracle’s offer per share was a premium of 40% over Sun’s $6.69 as their previous final price. For either of the competitive companies to acquire Sun shares, the financial state, business lines, R&D figures, and personnel expenditure must be well analyzed and studied.
Important issues posed by the case
One of the main issues of concern is the possibility of IBM increasing its offer on share purchases, seeing that it is a very competitive company. Would Oracle be able to offer more than its competitors, and how far were they willing to go in terms of their offer?
Another issue of concern is the ability to deal with lower-end customers that Oracle had not dealt with before. Given that Sun had already built a reputation among its customers, some may not be able to reach the standards set by Oracle once the merge occurs. Therefore, the marketing team at Oracle must stay ready to familiarize them with the happenings to retain them and improve the annual earnings.
Besides, it is essential to consider the extra value that Oracle would make after the merge. Seeing that the aim of buying the company is to improve on already existing programs and software, how much profit would it be for Oracle? Would they invest more in improving software that would end up failing?
Financial Theory
In 2008, the software and services industry received the highest revenue of and seeing that Oracle $2,239 billion is a software industry. The company earns an average of $23.4 annual revenue. The industry had numerous competitors with soft wares ranging from heavyweight software such as Microsoft windows to small applications such as website designs for small businesses. IBM also is a software-based industry, and the company enjoyed a predictable and notable market share together with Microsoft and HP. Compared to IBM, Oracle had a higher market share. The computer hardware industry generated an income of $411 billion. It is a result of customer preference to known brands, thus restricting new brands from a fair share in the market. Even though the demand was high as usual, the competition only favored specific brands.
In the 1990s, the market was highly controlled by the Cisco company controlling the networking market while Sun and HP were the leading in server manufacturing. SAP dealt with the software while Oracle led in the database. At this time, IBM had switched to offering consultation services. Customers would blend services from different rival manufacturers to fit their needs; for example, HP laptops running windows OS used hard drives from Toshiba.
In 2008, the companies portrayed high amounts of competition, which forced the less privileged ones to drop some operations and focus on others. For example, Apple and Dell reduced their manufacture of laptops and focused on other hardware devices such as printers, cameras, and mobile phones. The shifts were referred to as ‘co-opetition,’ where companies would compete in certain sections and cooperate in others. During this period, Oracle was on a shopping spree expanding from software management to other products.
Recommendations
Following the decision by Oracle to still try and obtain Sun Microsystem, it is highly recommendable that enough study is conducted on the possible success of the merge. However, the idea is ideal since Sun already has a ready market with the potential to enable further growth of Oracle. The fear of losing customers at the initial stages is not a risk worth making. It is recommendable that Oracle starts by buying fewer shares rather than the whole company first to test how the market will receive the new products.
Gaining a ready market also means gaining negative customers. This means that in case Oracle wins the bargain against her competitors, it should be ready to deal with the hate and criticism that were previously owned by Sun Microsystems. However, this can be dealt with by ensuring that oracle makes their customers aware that it was only a merge. Still, the quality of service delivery becomes better or remains the same.
It would be advisable that the second attempt to acquire Sun be open and transparent. This is to avoid the instance that happened earlier when Sun and Oracle had a deal of $8 billion in cash only for rumors to be heard that IBM had plans of also acquiring the company. This confusion poses as a waste of time and resources
It would be recommended that once the merge occurs, the team should come up with new products. Be the software or hardware. The new items will help in luring clients to the company. Also, a change of name and slogan would highly favor the success of Oracle.
Conclusion
The downfall of Sun was reasonable, and hence the merge would not have many negative effects. Competition is expected and important in any business setting. Madison is a smart employee at Oracle, and her research and concerns ought to be listened to and considered before the final decision is made.
References
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.
Dube, H. (2013). The impact of debt financing on the productivity of small and medium scale enterprises (SMEs): A case study of SMEs in Masvingo urban. International Journal of Economics, Business, and Finance, 1(10), 371-381.
Thompson, F., & Gates, B. L. (2017). Betting on the future with a cloudy crystal ball? How financial theory can improve revenue forecasting and budgets in the states. In Debating Public Administration (pp. 137-153). Routledge.