Google expected to stick to small deals; antitrust exam predicted to push Sun deal into 2010

By Cristal Cody

Tupelo, Miss., Sept. 24 - While Google Inc.'s chief executive officer hinted at potential larger deals in media reports, the company likely will stick to small acquisitions, an analyst told Prospect News on Thursday.

In other situations, a market source said Thursday that the complexity of competition concerns surrounding Oracle Corp.'s acquisition of Sun Microsystems, Inc. likely will push the deal's closing into 2010.

Meanwhile, stocks dipped on Thursday.

A market observer said that disappointing existing-home sales numbers sent equities down.

"The S&P 500 ended the day down 1%. All 10 sectors ended the day down, with materials and financials losing the most," the source said.

The Dow Jones Industrial Average lost 41.11 points, or 0.42%, to close at 9,707.44.

The Standard & Poor's 500 index fell 10.09 points, or 0.95%, to 1,050.78, and the Nasdaq Composite index closed down 23.81 points, or 1.12%, at 2,107.61.

Google open for business

Google CEO Eric Schmidt said in media reports that the company expects to buy one small company a month, but he added that there could be larger acquisitions.

In August, Mountain View, Calif.-based Google announced the purchase of video compression software company On2 Technologies Inc. for $106.5 million.

"The small deal pipeline is back on," Colin Gillis, an analyst with Brigantine Advisors LLC, said in an interview Thursday. "We can expect maybe one a month, which is still pretty aggressive. He [Schmidt] held out the caveat there could be a larger deal out there."

However, Gillis said Google is unlikely to take on any sizable acquisitions while it completes its takeover of Clifton Park, N.Y.-based On2.

The company is planning to "buy instead of hire people. I don't expect them to do any larger deals," Gillis said.

U.S. regulators cleared Google's stock acquisition of On2 on Monday. The transaction is expected to close in the fourth quarter.

Google shares slipped $1.69, or 0.34%, to close at $496.77.

On2 shares closed unchanged at 58 cents.

Europe holds reigns on Sun deal

Earlier this month, the European Commission said it would conduct an in-depth investigation of Oracle's $7.4 billion takeover of Sun Microsystems, in particular focusing on Sun's MySQL database product.

The commission's decision is not due until Jan. 19.

"We have reviewed the E.U. Competition Commission's phase 2 questionnaire that was sent out to competitors of Oracle and Sun," a market source said Thursday.

"Given the complexity of the issues, which go as far as the intellectual property implications of the forked versions of MySQL, we have become more skeptical about an accelerated timeframe and are now targeting a mid-January deal close for the transaction."

Although the commission is not expected to have a "strong case against the merger," the agency could pressure Sun to divest MySQL, which Oracle has said it will not do, the source said.

Also, the wait provides greater chances for something to go wrong with the deal.

"The longer transaction timeframe means that JAVA will announce one or two more quarterly earnings," the market source said. "Given JAVA's latest poor earnings disclosures, investors would likely raise concerns about a potential [clause] related to JAVA's financials. This gives us concern regarding a potential price cut."

Santa Clara, Calif.-based software maker Oracle has offered $9.50 a share in cash for Redwood Shores, Calif.-based Sun, which also produces the Java programming software.

The U.S. Department of Justice approved the deal without conditions in August.

The transaction requires antitrust clearances by additional regulators that include Canada, China, Israel, Switzerland, Russia, Australia, Turkey, Korea, Japan, Mexico and South Africa.

Sun shares closed up 4 cents, or 0.44%, at $9.09 on Thursday.

Oracle's stock rose 4 cents, or 0.19%, to $21.17.

Mentioned in this article:

Google Inc. Nasdaq: GOOG

On2 Technologies Inc. NYSE Amex: ONT

Oracle Corp. Nasdaq: ORCL

Sun Microsystems, Inc. Nasdaq: JAVA

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