EU Objects To Oracle/Sun Merger

November 10, 2009 10:56 AM EST

Oracle Corp's (Nasdaq: ORCL) acquisition of server maker Sun Microsystems (Nasdaq: JAVA) has hit a roadblock, as the European Commission has objected to the $7 billion deal.

The European antitrust authorities have brought the deal into question, citing that combining Sun's MySQL database and Oracle’s products potentially could hurt the competitiveness in the database market.

The move by the EU does not mean the deal is dead, however the closing of the acquisition is expected to be delayed by the move.

The deal has already been approved by the U.S. Justice Department, which said again on Monday that it has no worries that Oracle's acquisition of MySQL will hurt the competition in the database market.

It is rare that the EU would block a deal that had previously been approved by the U.S. Justice department. The last such occurrence happened in 2000 when General Electric (NYSE: GE) said it would purchase Honeywell (NYSE: HON).

In a statement from Oracle the company said that "the transaction does not threaten to reduce competition in the slightest, including in the database market. The Commission’s Statement of Objections reveals a profound misunderstanding of both database competition and open source dynamics."

Oracle claims that the database market is made up of at least major players and that it is a very different company from that of MySQL.

Oracle does have an option to walk away from the deal; however it would have to pay a breakup fee of $260 million to do so.

The EU has the view that if left to grow on its own, MySQL could become a stand-alone competitor to commercial databases like Oracle.

Oracle agreed to purchase Sun in April, after Sun had several years of failed attempts to turn itself around. The deal could result in Sun being formed into a diverse technology company that could sell its computers packaged with Oracle's software.

Confident his company will ultimately have a positive resolution for the transaction, Oracle CEO Larry Ellison recently noted that Sun is losing $100 million a month due to the fluidity of the company's future.

Analysts at FBR capital Markets say that Oracle could make some concessions or agree to some remedies that guarantee that MySQL will remain an open source database option for customers. FBR suggests that extending the process with the EU objections all the way to an appeal will hinder the already fragile state of Sun due to the ongoing uncertainty of the acquisition. FBR maintains a Buy rating on Oracle.

Shares of Oracle are currently moving slightly down at $21.75, a drop of 0.34 percent. Sun is trading slightly up by 0.49 percent at $8.28.

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