Identification When One Company Looks at Taking

¶ … Identification When one company looks at taking over another company that are many issues that must be looked at before a final bid can be put on the table. The first thing that the buying company must do is determine a vision for the combined companies.

In the case of Oracles buy out of Sun Microsystems the visions that Oracles' Ellison was to transform the combination of the two companies into the Apple for the business customer by delivering high-quality, seamlessly integrated consumer products where software and hardware components were developed in conjunction, thus minimizing the customer setup process. Ellison developed this vision by looking at what Sun Microsystems had that Oracle didn't and how would this acquisition help to better Oracles position in the market.

If a company can buy another company at a practical price that has a unique niche in a particular industry it will more than likely try to do so. Once a niche is carved out, it becomes the opportune time for one company to start looking at another. In terms of both money and time, it is frequently cheaper for some companies to get a given product or a service than to make it from scratch. This permits them to keep away from the risk often associated with startup procedures.

The overall technology industry had traditionally been a strong one. The computer hardware market, which consists of personal computers, servers, mainframes and workstations, has become a necessity for both individuals and businesses, making the demand strong and consistent. Because competition has been weak the market had grown almost five percent over the last few years and is expected to continue to grow well through 2013. The software and services segment on the other hand, despite being the largest part of the IT industry has enjoyed many competitors over the years.

The segment as a whole though has outpaced the hardware segment growing at a rate of almost thirteen percent. This segment is also expected to continue its healthy growth rate through 2013. The smallest segment of the industry, the computer storage and peripherals area, which includes data storage components, computer processors and other peripherals, is also inundated with competitors. Its growth rates have mirrored those of the computer hardware market and are also expected to continue to grow.

In the case of Sun Microsystems they had a niche in hardware and networking that Oracle wanted to join with their expertise in software. In this particular case, Sun also had some software applications that would go to Oracle. Oracle had to decide whether mixing the software application sales would do more harm than good. It was determined that since the software applications were geared towards different things and were not currently in competition with each other, that there would be no real detriment to any of them.

The next thing that needed to be looked at in this case was the price. When Oracle first began eyeing Sun they did not know that IBM was interested as well. If Oracle really wanted Sun they had to come up with a price that was reasonable considering there was competition. Determining this price was the job of the valuation team. The first thing that the team did was to collect as much data as possible.

They looked at data for comparable companies, the appropriate yields, and balance sheets for both companies and historic financials. The team spent many hours looking at Sun's historical record and carefully developed projections for its future performance as a standalone company. The next step was to figure out how much extra value Oracle could generate by making Sun's operations more efficient, cutting outdated and inefficient products and departments, streamlining remaining product lines, and introducing new synergistic systems. The valuation team determined that cost cutting would be the easy part.

It was determined that Oracle could reduce Sun's staff by 20-25%, slash SG&A expenses by 22-32% and allocate a significant amount for other restructuring costs. The next steps of estimating sales forecasts, potential new product lines, and software licensing were not as easy to figure out. It was though that Sun would initially lose some customers as a result of the merger. Another issue that was looked at was that of dealing with the lower end customers that Oracle was not used to dealing with.

It was thought that these customers would hesitate to buy from Oracle for fear of being pushed into buying more expensive products. The solution was for the marketing department to develop a campaign to try and reassure all customers of continued service. The next issue that the valuation team had to tackle was what to do with Sun's software. The quality of Sun's software was so well-known that Oracle was sure that they could increase its revenue stream from software licensing. But the real.