Recent media reports have said European Union antitrust officials are close to issuing a statement of objections as a first step to block Oracle's ORCL acquisition of Sun Microsystems JAVA. Allegedly, the European Commission's opposition to approving the deal is centered on the future competitive implications of Oracle's ownership of Sun's MySQL--an open-source free database that has gained significant popularly in recent years. Apparently, Oracle's management has been unable to provide satisfactory evidence of fair competition to appease antitrust officials. Furthermore, Oracle seems to be unwilling to commit to a divestiture of MySQL. After all, ownership of MySQL was one of the multiple motives behind Oracle's interest in acquiring Sun, in our opinion.At this point, we continue to believe the acquisition of Sun has a neutral effect on our fair value estimate for Oracle, because the incremental revenue coming from Sun would be largely offset by the low profitability of its hardware business. However, there could be strategic implications if Sun is eventually acquired by another IT competitor. Investors will recall that Oracle considered purchasing Sun only after IBM IBM had made its own acquisition bid for that firm. The failure of the acquisition would also keep alive MySQL's threat to Oracle's dominance of the database market. Finally, if the deal is not approved, Sun will be left in a weakened financial and strategic position.
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