Week 4 Research Paper
Case 48 – Sun Microsystems
This case calls for you to reevaluate the price Oracle should pay to acquire its long-term business partner, Sun Microsystems. The emergence of new suitors (e.g., IBM) forced Oracle’s corporate development team to go back to the drawing board and reevaluate all the assumptions they previously made in putting together the initial bid of $7.38 million, or $9.50 per share, on April 17, 2009. You will need to value Sun’s stock and take a position on whether there is any room left to sweeten the offer if a bidding war unfolds with other potential buyers. The case outlines the Oracle strategy and how long-term partnering with Sun contributed to it to date. It also allows for an in-depth discussion of the changing competitive landscape of the technology industry.
This case is an exercise in valuing a potential acquisition target. It presents an opportunity for you to develop appreciation for valuing a company using discounted cash flow analysis (DCF).
Consider also the inclusion of synergies and their relevance to the valuation. The bidding dimensions of the case are highlighted by the emergence of IBM and other potential buyers.
Produce a substantial and detailed research report (essay) that addresses the following key questions:
Is Sun Microsystems a good strategic fit for Oracle?
Use a discounted cash flow (DCF) analysis to place a value on Sun Microsystems:
What rate of return should Oracle require on the acquisition?
What base-case cash flows do you forecast?
What is your estimate of terminal value?
What is the enterprise value of Sun Microsystems? What is the equity value?
Identify the synergies and conduct a sensitivity analysis to estimate the effect of synergies on enterprise value.
If a competing bidder appears, how high a price should Oracle be willing to offer?
You should use details from the case as presented in the text book, and the attached spreadsheet will also be valuable for conducting your research and analysis: Case_48_Sun_Micro_F1630X.xlsx