Oracle’s Acquisition of Sun Microsystems and SAP’s Acquisition of Sybase
Oracle acquired Sun Microsystems for $7.4 billion in May, 2009, marking the company’s entry into the hardware market (“Oracle Agrees to Buy Sun,” 2009). This deal entailed that Oracle would pay “$9.50 per share in cash for Sun” (“Oracle Agrees to Buy Sun,” 2009, p. 6), which totaled to a net amount of $5.6 billion of Sun’s debt and cash.
This deal came after Sun rejected an offer from IBM. It also came as a surprise in the computer software world as this would be the first time that Oracle would conduct business in the computer hardware industry. Prior to this, the company has never had a server or hardware OS (operating system) business, a market which, on the other hand, was greatly dominated by Sun.
It’s notable, however, that Oracle has been using Sun’s Solaris as the platform for its databases and that both companies share other areas of similar interests, such as their support for the Java software. According to Oracle’s CEO Larry Ellison, Solaris and Java were the two main reasons that they acquired Sun (“Oracle Agrees to Buy Sun,” 2009). This also conformed to Oracle’s acquisition strategy of buying companies with market-leading products and would enable Oracle to tightly integrate its database to some of the unique high-end features of Solaris. In turn, this would enable Oracle to deliver complete and integrated computer systems – from database to disk – that would be optimized for easier management, enhanced security, improved reliability and high performance while at the same reducing the total cost of ownership.
Making a similar move, SAP acquired Sybase for $5.25 billion in May, 2010 (Vance & de la Merced, 2010). SAP paid $65 per share for Sybase through a tender offer and also assumed the debt of Sybase, which amounted to $400 million.
Just like Oracle’s acquisition of Sun Microsystems, which served as Oracle’s entry into the computer hardware industry, SAP’s acquisition of Sybase also marked SAP’s entry into the database software market. This brings SAP at par with its long-time competitor Oracle.
Although Sybase trailed behind its larger competitors – Microsoft, IBM, and Oracle – by a large margin, it was speculated that the merger of SAP and Sybase would cause a stir in the database and business software markets. With the combined technological capabilities of SAP and Sybase, they planned to develop a data handling system that would run jobs much faster than the standard databases. They also planned to develop more mobile applications that would enable remote workers to access large volumes of data.
Just as SAP was “pressured” into acquiring Sybase in order to keep up with Oracle, which acquired Sun Microsystems, it was speculated that Oracle was also “pressured” into acquiring the whole of Sun Microsystems – when it initially planned to acquire only Sun’s software assets – in order to prevent IBM from acquiring any part of Sun (Linsenbach, 2009).
Changes in Oracle and SAP after the Acquisitions
Oracle’s acquisition of Sun required Sun to file a proxy statement with the SEC and required Sun’s security holders and investors to make a vote or an investment decision with regards to the merger (“Oracle Agrees to Acquire Sun,” 2009).
Upon finalization of the merger, Oracle planned to quickly combine both companies’ software assets. They also planned to focus on their joint enterprise customers, which they believed would give them a competitive advantage and would enable them to improve customer relations, as well as help customers reduce complexity and cost. With Sun having outsourced most of its servicing, assembly, and manufacturing process, Oracle intended to ensure that Sun remained profitable even after it becomes an operating unit within Oracle. As with most acquisitions, this merger would also result in Sun laying off 5,000 to 6,000 of its employees (Wallace, 2009) in the same manner that layoffs were also expected at Oracle, although it wouldn’t have been as bad as it was for Sun (Fitzgerald, 2009)
Oracle forecasted that the acquisition would add at least $1.5 billion in additional annual non-GAAP operating income and would be “at least $0.15 accretive in the first full year on a non-GAAP basis” (“Oracle Agrees to Acquire Sun,” 2009), which would make this acquisition more profitable than Oracle’s previous acquisitions.
In reality, Oracle reported a “13% increase in new software licenses about a year after the merger, with its applications business reporting” (“Rocela Responds,” 2010) an increase of 21 percent in new license sales and its support and maintenance fees increasing by 13% (Rocela Responds,” 2010). Although Oracle’s acquisition of Sun had an impact on their results, an Oracle executive said that the Sun integration was going according to plan, that their profit goals for fiscal year 2011 would be met, and that “Sun would be accretive to earnings by GBP1bn in its full first year” (“Rocela Responds,” 2010). It’s notable, however, that the Oracle-Sun merger also caused some concern with strategic vendor managers as the merging of the two companies and the integration of their products might weaken the vendors’ bargaining power.
Unlike Sun Microsystems which would become an operating unit within Oracle, Sybase would operate as a stand-alone unit under its own management within SAP (Vance & de la Merced, 2010). Both SAP and Sybase would continue to have their own product road maps. Their development organizations would also remain intact while making the most of opportunities for cross collaboration (SAP, 2010.). Also unlike the Oracle-Sun merger, the SAP-Sybase merger would not result in layoffs and would not introduce any change in the way Sybase was marketed (Kanaracus, 2010).
Since SAP’s software was incompatible with that of Sybase, it was estimated that it would take six months for this situation to be rectified and that it would take about one year before a combined product would be made available to its customers. However, just like the Oracle executives, the SAP executives also expected for its and Sybase’s products to be integrated quickly, especially since SAP and Sybase already had some joint solutions (Rishaad, 2010). In particular, SAP planned to come out with the in-memory technology that they claimed would revolutionize the database and the real-time analytics business. One year later, it would be seen that SAP customers seemed to be satisfied with the merger, as evidenced by their feedback in SAP’s SAPPHIRE NOW annual conference (Smith, 2011).
Images of Change in Oracle and SAP
The images of change that can be seen in the acquisitions made by Oracle and SAP are the director, navigator, and interpreter images. The Director image refers to an image that denotes the ability to control change outcomes where these outcomes are considered as things that can be achieved (Palmer, Dunford & Akin, 2009). With this image, the change manager is responsible for directing the organization through the various steps that need to be completed in order to achieve the required change. Also with this image, the change is considered a strategic choice, which is necessary for the organization’s growth and survival.
With regards to the acquisitions made by Oracle and SAP, these were considered strategic moves for both companies. For Oracle, it was part of their strategy for growth and expansion. For SAP, it was their strategy for keeping up with their competitors, particularly with Oracle. In these changes, the CEOs and top executives of both companies were mainly responsible for making the change happen. They were actively involved in the negotiations – with the companies they planned to acquire as well as with the regulatory boards and policy makers. They were also responsible for identifying their objectives for the mergers, that is, what they planned to achieve and how the acquisitions would benefit them. To ensure that these objectives were met, the top executives created product roadmaps, restructured the organization as necessary, and created opportunities that would enable them to introduce their new products to their customers and the public.
The Navigator image also denotes control of the change, although not all of the intended change outcomes can be achieved. In this image, the change manager will have little control over some of the change outcomes (Palmer, Dunford & Akin, 2009), which can be influenced by competing processes and interests.
In Oracle, the Navigator image can be seen when Oracle made Sun an operating unit within the organization. Since Sun has been outsourcing most of its operational functions prior to the merger, it becomes the change manager’s responsibility to ensure that Sun is able to transition and adapt to Oracle’s processes well. Although SAP took the opposite route by making Sybase a standalone unit that operates within the organization, the change manager becomes responsible for making sure that Sybase’s objectives are aligned with those of SAP and that collaborative efforts are executed properly. Other than these, however, the details of how Sun and Sybase would operate may not be completely under the main companies’ controls as the acquired companies also have their own managers and their own ways of doing things.
With the Interpreter image, the change manager becomes responsible for creating meaning for the change for the other members of the organization (Palmer, Dunford & Akin, 2009) and for helping them understand the reasons for the change. The change manger is also responsible for correcting any wrong notions about the change.
In Oracle, there was concern over whether Oracle would continue to support MySQL as open source software (Reuters, 2010). This was one of the bases for the approval of the Oracle-Sun merger. In response, Oracle’s executives gave assurance that it will continue to support MySQL. As a result, Oracle obtained the European policy makers’ approval for their purchase of Sun.
Even SAP’s acquisition of Sybase came under criticism as analysts thought that SAP might have paid too much for Sybase (Kanaracus, 2010). In response, SAP executives explained how the acquisition would benefit SAP, which made the price they paid reasonable. As well, there were speculations that SAP would lay off Sybase employees. SAP executives corrected this notion by saying that they would not lay off anyone and that they didn’t want their employees to be demoralized. They further indicated that layoffs and cost-cutting were not part of their plans and that the acquisition was for expansion, customer satisfaction, and growth (Kanaracus, 2010). As a result, Sybase was able to continue operating without disruptions, which in turn enabled SAP to come out with their joint applications more quickly.
I think that both Oracle and SAP would have best facilitated the change with a combination of the Director, Navigator, and Interpreter images, as previously discussed, although I think that they could have also made use of the Coach image. Since Oracle and SAP both acquired companies that also have their own values and processes, it would be best for the change managers to influence these values and processes so that they are aligned with those of the main companies’. Since the acquired companies are also good at what they do, they should be allowed some autonomy as long as they are still complying with the main companies’ values and objectives.
Overall, however, I think that both Oracle and SAP mostly used the Director image as the executives of both companies had clearly defined objectives for the acquisitions even before they actually made the acquisitions. They also had concrete plans on how to achieve those objectives, and given their prior success from numerous other acquisitions, it can be assumed that their transition process for acquired companies is efficient, accurate, and reliable.
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