The European Commission has opened an in-depth investigation under the EU Merger Regulation into the planned acquisition of US hardware and software vendor Sun Microsystems by Oracle Corporation, a US database and application software company. Commission has shown its concern about the implications over competition between Oracle databases and Sun's MySQL, and will now have 90 working days, until January 19th 2010, to take a final decision.

Oracle Corporation and Sun Microsystems, Inc. entered into an agreement pursuant to which a subsidiary of Oracle will merge with and into Sun and Oracle will acquire 100% of the outstanding voting securities of Sun for USD 9.50 per share in cash. Sun’s Board of Directors has unanimously voted in favour of the proposed Transaction and Sun’s stockholders approved the Transaction at a special meeting of stockholders held on July 16th 2009.

On July 30th 2009, the Commission received a notification of a proposed concentration pursuant to Council Regulation (EC) Nº 139/2004 by which the undertaking Oracle Corporation aimed to acquire within the meaning of such Regulation control of the whole of the undertaking Sun Microsystems, Inc. by way of purchase of shares. This prior notification was published in the OJEU on August 5th.

The Commission’s initial market investigation indicated that the proposed acquisition would raise serious doubts as to its compatibility with the Single Market because of competition concerns on the market for databases. The decision to open an in-depth inquiry does not prejudge the final result of the investigation. The Commission now has 90 working days, until January 19th 2010, to take a final decision on whether the concentration would significantly impede effective competition within the European Economic Area (EEA) or a substantial part of it.

Oracle acquisition over Sun Microsystems. Transaction profile

• Oracle (Public, NASDAQ:ORCL) is active in the development, manufacture and distribution of company software, including middleware (i.e. software that connects software components applications), database software and business application software and related services.
• Sun Microsystems (Public, NASDAQ:JAVA) offers computing infrastructure, including server and storage solutions and middleware and database software.

The proposed transaction would bring together two major competitors in the market for databases, which is highly concentrated with the three main competitors of proprietary databases, Oracle, IBM and Microsoft, controlling approximately 85% of the market in terms of revenue. Oracle is the market leader in proprietary databases, while Sun's MySQL database product is the leading open source database.

The Commission’s preliminary market investigation has shown that the Oracle databases and Sun's MySQL compete directly in many sectors of the database market and that MySQL is widely expected to represent a greater competitive constraint as it becomes increasingly functional. The Commission's investigation has also shown that the open source nature of Sun's MySQL might not eliminate fully the potential for anti-competitive effects. In its in-depth investigation, the Commission will therefore address a number of issues, including Oracle's incentive to further develop MySQL as an open source database.

The Commission bases its decision for in-depth examination on the need to ensure that customers would not face reduced choice or higher prices as a result of this takeover, as  the world's leading proprietary database company proposes to take over the world's leading open source database company. The Commission has to examine very carefully the effects on competition.

“Databases are a key element of company IT systems. In the current economic context, all companies are looking for cost-effective IT solutions, and systems based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available”, declared Competition Commissioner Neelie Kroes.