Oracle’s unlikely acquisition

Contact: Brenon Daly

After spending last week with its customers and partners at its annual trade show, Oracle will be meeting later this week with its owners. The company’s annual shareholder meeting is slated for Wednesday. If the talk at OpenWorld is any indication, the question of M&A is almost certain to come up during tomorrow’s meeting of shareholders in the acquisitive company. Over the past decade, Oracle has purchased more than 80 companies at a total cost of more than $40bn.

Given some of the recent remarks, however, we’re fairly confident in scratching at least one name off of any potential shopping list: Hewlett-Packard. Some people have recently suggested that buying the reeling HP would get Oracle significantly closer to its goal of mirroring IBM’s strategy of providing not only single technology products, but also integrated systems as well as services to support the products. (The fact that Oracle hired ousted HP honcho Mark Hurd last year only added to the intrigue around the possible pairing.)

At Oracle’s meeting with financial analysts during OpenWorld, CFO Safra Catz fielded a question about the company’s appetite for a (hypothetical) transaction valued in the tens of billions of dollars. While not speaking specifically about HP, Catz made it nonetheless pretty clear that Oracle – and more to the point, her boss Larry Ellison – would be extremely unlikely to do a deal like that.

The reason? In all likelihood, Oracle would probably have to use at least some equity to cover the purchase of a company like HP, which currently has an enterprise value of $64bn. (And that’s without any premium on a stock price that is down 40% so far in 2011.) Noting that CEO Ellison owns some 1.1 billion shares of Oracle, Catz summed up the calculus this way: Would Ellison really want to trade some of his stake in Oracle, which she described as having its strongest-ever product portfolio, for a chunk of HP? That’s not a ‘compelling’ trade, she said dismissively.