Orange, T-Mobile, Oracle and Sun: Sweet and sour mergers?

September 08, 2009

Posted by: Mike Simons

The merger between Orange and T-Mobile’s UK networks has probably sparked most conversation among IT professionals today, but the possible link between two food giants may ultimately prove more interesting

US-based Kraft (Philadelphia cream cheese, Maxwell House coffee, Toblerone) has made a £10 billion bid for UK-based Cadbury (Dairy Milk, Flake etc).

Cadbury has, inevitably, rejected the initial bid as massively undervaluing the company and the City is expecting a substantially increased offer.

Kraft meanwhile has claimed a merger would deliver estimated cost savings of £377 million. That doesn’t seem much for a deal worth £10 billion and rising, and could easily be wiped out by a duff IT integration programme.

Cadbury certainly knows about IT disasters. Three years ago it took a £12 million hit on its balance sheet following business problems around a £200 million SAP implementation covering supply chain, purchasing, manufacturing, distribution, sales and marketing.

At least both Kraft and Cadbury run on SAP systems. Better still, perhaps, while Kraft has outsourced much of its IT infrastructure to EDS, Cadbury has outsourced its global datacentres to HP, EDS’s parent.

The same core systems, effectively the same main outsourcer, what could go wrong? Maybe it is the voice of experience that has left Kraft and its advisors talking down the cost savings that a deal will deliver.

Talking of M&A activity, the European Commission decision to deepen its investigation into Oracle’s takeover of Sun, which was announced yesterday, produced the inevitable complaints about bureaucratic interference in a done deal.

I initially thought the Financial Times had it right when it wrote:

“Oracle is angry about the delay: competitors are utilising the uncertainty to poach clients from Sun. Yet while there may be blame on both sides, Oracle was late in officially notifying the deal to Brussels – on 30 July, three months after it was announced. It may have miscalculated that if it could get US approval, the EU would rubber stamp it.”

Matt Asay, isn’t so sure. In a surprisingly cynical, though probably correct, blog post, he suggests Oracle doesn’t care either way:

“The EU's delay threatens to gift Sun's customers to IBM and other competitors while doing little to no good for its MySQL business. Worse still, the EU may be paving the way for Oracle to drop its bid, only to return to scoop up Sun's software assets at a rock-bottom price.”

He goes on:

“Oracle isn't a silly company, and isn't going to pay top dollar for a diminished asset. It would not be surprising to see Oracle drop its offer by as much as 50 percent, claiming it's actually a premium as revenues are down by more than that. (There is precedent for this in Oracle's Oracle's various offers for PeopleSoft.) Sun, ruined by this point, would have little choice but to capitulate.

All of which would make Oracle's acquisition of Sun's software business even better than before.”

The old saying was “buyer beware”. Perhaps among IT vendors it should also be “seller beware”.

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