Changing conditions of business environment normally result in various measures from corporations. While some aim at responding directly to immediate changes, most of the responses normally focus on mitigating possible crises following adverse effects of the dynamic market conditions. Mergers and acquisitions usually characterize business expansions and strategies aimed at managing overhead costs as well as increasing the range of benefits accrued from large scale operations. The case of Oracle and Sun merger discussed in this essay presents some of the important issues associated with acquisitions and mergers. These issues do affect all corporations involved. Since the stakeholders of either companies form the basis of company ownership, the discussion addresses their concerns by first assessing the economic and social befits that they would derive from this merger. Oracle is a database technology company with a large world market share of software in information management segment. Larry Ellison founded the corporation about three decades ago together with Bob Miner and Ed Oates. On the other hand, Sun Microsystems mainly deals in the manufacture of hardware components of technology devices.
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A merger between Oracle and SUN is subject to the approval of shareholders of corporations as well as other regulations and closing conditions. Due to the nature of core competencies of both companies, the merger is likely to generate more benefits to shareholders of SUN and Oracle though at differing levels. Given that Oracle has an established market in sale of software technology for running other companies’ databases, and sun is a leading corporation in hardware production, the merger would lead to development of integrated systems customized to meet specific needs of their customers. The merger would undoubtedly result into more value for shareholders of Oracle because their company would experience expansion when it finally takes over Sun. However, the fate of Sun’s shareholders would depend on the company’s liability prior to joining Oracle. As the merger progresses, the Oracle should be able to leverage the returns accruing due to reduced costs of production from the sale of more adaptable technology devices (Auerbachm, 1988 p.68).
At the same time, Sun’s shareholders who have considerably low units in shares would get little dividends in the short run because of the degree of their profitability in the rate of returns on the merger. Alternatively, Sun shareholders may chose to sell their share as part of the merger thereby resulting into tax benefits in nontaxable sale to Oracle. In addition, this may also result into reduced tax for Sun in the merger as Oracle gets sufficient time to effect the payment for Sun acquisition. Sun Microsystems also has the advantage of net gain to its shareholders capital relative to its taxable returns. In this situation, the Sun’s shareholders should find it relevant because in case there were no take-over the corporation would have no effect on their dividends. The average shareholder benefit of Oracle members would increase significantly following the sales integrated systems of the new merger.
Oracle is predominantly a large company with diversified software products in many lines of data development toolkits. Therefore, Sun shareholders stand to benefit from increased spectrum of portfolio diversification occurring in having the functions of Oracle extended to cover production of computers well fitted with software generated by its qualified staff. Consequently, these products would prevail in the market resulting into more revenue that would benefit both the shareholders of Oracle and Sun alike. When Oracle finally succeeds in the takeover of Sun Microsystems, the merger should protect individual shareholders from extra costs resulting from premature taxes by completely reorganizing the entire corporation involving both Sun and Oracle as one organization.
The shareholders of Oracle would experience increased dividends in the long run though they would have to do with company financial challenges in the short run. Oracle’s takeover of Sun Microsystems it would increase the asset base of the company in the proposed merger. The action would increase investor confidence in the corporations thereby resulting into increased value for dividend within the first season of the market. The shareholders would also experience tax reduction on presale shares. Besides, it would draw more funds to the business pool of the corporation to be reinvested in the restructuring processes (McDonald, Coulthard, and De Lange, 2006 p. 28).
Combine power of Sun and Oracle may yield various benefits including the possibility of monopoly power in technology products production and marketing. While independent operation of each company had the possibility of creating competition with products’ non-compatibility, this merger may lead to production of high quality product compatible with inputs of each company specialization. This would follow tremendous diversification of product line with reduced cost of production obtained from specialized services of staff from both corporations. Given that presently Oracle controls a large market share of management of data systems, the key objective of buying the entire Sun would incline towards availing more resources to produce (Gaughan, 2007 p. 24)
Besides cost reduction benefits, the newly merged corporation would experience ease in managing staff from either companies following increased central management authority. With little challenges facing each unit, Oracle would be in the position to focus on new markets for concentrated output. The merger also brings more staff into its board that can be deployed to meet the corporation’s objectives in various fields. Probably, this step may act as the initial stage of Oracle towards a restructuring with global impact production. The merger would also result into limited liability Corporation whereby membership or shareholders subscription need not reach 100% on the merger. It would continue to serve the interest of both companies without mere discrimination in the short run.
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Other benefits relate to economies of large-scale production. For example, large pool of trust funds often attracts lower rates of investment unavailable to individual firms. Hence, merged corporations favor increase production tailored for diversified market segments. Fortunately, these markets already exist for both the company making combined business easier. Tax benefits of merger corporations critically prompt Oracle to merge its functions together with those of Sun Microsystems. The merged corporation would have at its disposal wide range of resources with experienced staff drawn from both sides producing technology software under single taxation and duty requirements. Similarly, the merger would benefit from a techno-structure formed by specialist from both companies (McDonald, Coulthard, and De Lange, 2006 p. 31)..
The merger may result into double taxation of shares belonging to the members of the new corporation because their income is taxed at corporate level, as some of the remaining is distributed to stakeholders in various other forms. Again, stakeholders face taxation at individual level before meeting another holding levy for holding company.
Another pitfall involves the issues of antitrust. If the other companies in the same line find that the merger may lead to a possible monopoly, its restructured management and operation is likely to face sanctions from antitrust groups from its rival until market regulatory authorities intervene. This case may be complicated if the merger results into anticompetitive structures. Certainly, Oracle-Sun take over would put Oracle much ahead of its initial competitors in the software industry with additional capability to franchise in new regional markets. Therefore, antitrust may rise from many quotas beyond the jurisdictions of federal regulatory agencies (Gaughan 2007 p. 24).
The presence of Sun Microsystems shareholders in the merger corporation may present its own problems. For example, these shareholders may not agree with the management of Oracle in distribution of dividends earned and management decisions. Nevertheless, this may be ignored in the short run as the corporation plan to leverage returns based on equity. For Oracle to buy Sun Microsystems, the company may resort to special purchase acquisition vehicle (SPAC) to rollout IPO that would generate $7.4 Billion earmarked for the acquisition. In contrast, this may cause financial discrepancies after the takeover as shareholders of both sides of the corporation experience delayed payments of dividends. This occurs because the new merger has to pay its expenses incurred during the IPO (Demphilis, 2005 p.26)
Analysts observe that this is one of the most suitable mergers in this age where autonomy characterizes software and hardware production. Skeptics (Bears) of this merger should reconsider their view especially if one is a potential contributor. The merger would inevitably result into a corporate culture of technocrats comprising of experts from either ends. This team of professional would elevate chip technology and communication devices. The shareholders also stand to benefit as a result of this merger. However, the impact would not be immediate.
Auerbachm, A. (1988). Mergers and Acquisitions. Chicago: The National Bureau of Economic Research.
Demphilis, D. (2005). Mergers, acquisitions and other restructuring activities: an integrated. London: Elsevier.
Gaughan, P. (2007). Mergers, Acquisitions, and corporate restructuring 4th ed. New Jersey: John Wiley & Sons Inc.
McDonald, J., Coulthard, M. and De Lange. P. (2006). Planning for a Successful Merger or Acquisition: Lessons from an Australian Study, Journal of Global Business and Technology, 1(2) in Press.