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Oracle's bid for Sun hits a roadblock in Europe

The European Commission's objections to Oracle's $7.4 billion bid for Sun Microsystems could complicate the proposed merger of the two companies, and legal experts say the outcome could depend on how quickly these concerns are resolved.

On Monday, European competition regulators said in a "statement of objections" that the merger between the Silicon Valley software and hardware giants raised concerns over competition, according to the companies.

Specifically, the commission determined that Oracle's purchase of Sun's MySQL software would limit competition in the database software market, Sun said in a Securities and Exchange Commission filing. Oracle, the world's largest database software company, has argued that Sun's MySQL business is open source and doesn't compete with its own database software programs. Oracle chief executive Larry Ellison has also said the European review and delays in winning regulatory approval have cost $100 million a month.

Legal experts said the European Commission's findings won't necessarily lead to an outright rejection of the merger. The commission could pressure Oracle to accept conditions to its merger or divest some assets, such as the MySQL software business, to allay antitrust concerns.

"There is always the possibility that they can reach an agreement in which MySQL, which is a small part of the overall business, could be divested and they could reach an agreement earlier," said Albert Foer, president of the American Antitrust Institute. "On the other hand, maybe Oracle will fight it to the hilt in which could take several years."

Oracle, based in Redwood Shores, Calif., said in a statement that it would "vigorously oppose" the European Commission's finding.

"The commission's statement of objections reveals a profound misunderstanding of both database competition and open source dynamics," Oracle said in a statement. "It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source."

In an unusual move, the Justice Department issued a statement disagreeing with the European Commission's report.

Deputy Assistant Attorney General Molly Boast said in the statement that Oracle's proposed takeover of Sun was "unlikely to be anticompetitive."

"At this point in its process, it appears that the EC holds a different view. We remain hopeful that the parties and the EC will reach a speedy resolution that benefits consumers in the Commission’s jurisdiction."

The Justice Department approved the merger last August without any conditions. European regulators have taken an aggressive stance on some well-known high-tech firms, including an investigation into Intel's marketing practices. The European Commission fined Intel a record $1.5 billion for allegedly elbowing out competitor Advanced Micro Devices through bribes and threats to computer makers to use Intel chips. The Federal Trade Commission is also reviewing Intel. Last week, New York Attorney General Andrew M. Cuomo filed a suit against Intel over the same practices cited by regulators.

The last time regulators in the United States and Europe disagreed on a proposed merger was in 2001, when General Electric bid $41 billion for Honeywell. That deal ultimately crumbled.

Foer said that European regulators have been a "stronger cop" on antitrust for years, but that the Obama administration has shown signs that it will step up its oversight in this area. He explained that U.S. antitrust regulators tend to take a more short-term view of mergers, looking at how overlaps in business will affect prices and consumers.

"Europeans have a greater willingness to make longer-term projections on the outcome of a merger," Foer said.

By Cecilia Kang  |  November 10, 2009; 8:00 AM ET
Categories:  Antitrust , DOJ  
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