Sun’s Share Price Bears Watching in Oracle-EC Showdown

The SEC and others should keep a close watch on Sun Microsystems’ share price, and any big trades that influence it, in the weeks ahead.

As Oracle’s $7.4-billion bid for Sun is delayed by an extended regulatory review by the European Commission (EC), the risk is great of somebody benefiting financially from improper access to inside information.

Oracle wants to go through with its purchase of Sun, but it wants to acquire the whole company, including MySQL. Oracle CEO Larry Ellison has stated explicitly that he wants to own MySQL and has no wish to spin it off.

Conversely, European regulators have competitive concerns about Oracle’s ownership of MySQL. The regulators aren’t concerned so much with MySQL’s open-source integrity as they are with the fact that Oracle, IBM, and Microsoft control approximately 85 precent of the worldwide database market.

MySQL competes against Microsoft’s SQL Server in many developing markets where Oracle’s relatively high-priced database products aren’t major players. Oracle sees those developing markets as critical to future growth. With MySQL in hand, Oracle could gain market share in developing markets while hurting Microsoft. For Ellison, who always likes to win but enjoys it more when he’s beating an archenemy, there isn’t a better scenario.

But the EC might look askance at Oracle taking MySQL off the board. Again, the objections from the EC relate to competitive matters, not to issues of open-source integrity. Oracle has said it would keep MySQL alive, that it would continue developing and supporting it, and those assurances haven’t been good enough for the European regulators. That’s because the issue is market dominance, and Oracle doesn’t become any less dominant as the owner of MySQL. To the contrary, one could argue that it will become stronger, particularly in markets where it currently has a modest profile.

The two sides are digging in and compromise will prove difficult. As long as Oracle insists on ownership of MySQL, the EC is likely to deny the Sun acquisition. Somebody will have to blink or it could end in tears, with Oracle walking away from the table, Sun slipping further into the swamp of despond, and perhaps the whole cycle to start again with IBM reasserting a modified version of its previous Sun bid.

Now I’ll circle back to my original point. Given that the two sides are intractably opposed to one another, what happens if somebody gains early knowledge of how the EC will rule in its review? Similarly, what happens if somebody knows what Oracle’s braintrust is thinking and how it will respond to an ultimatum from the bureaucrats in Brussels?

Sun’s shares are trading at a 16-percent discount to Oracle’s $9.50-per-share takeover offer. That tells us doubts are growing about whether the transaction will go through. What we don’t know is whether that movement is driven by “smart money” or by conjecture based on regulatory enigmas, deductive reasoning, and speculation.

The situation bears watching. It isn’t as if insider trading hasn’t been known to occur in these circumstances.

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