Why Oracle Is Not Likely to Buy EMC Anytime Soon

Is Oracle indeed plotting to buy the world's largest data protection and storage vendor, EMC? That's the rumor, one restarted by a report from Citigroup analyst Walter Pritchard [referenced here in Eric Savitz's Barron's column], that went careening through the world's business communication channels on Oct. 14.

Yes, this one's surfaced before, and yes, EMC's stock price bumped up 4.5 percent on the day. But most big companies get talked about when acquisition trends start up, which generally happens during upmoves in the cycle of macroeconomics.

For starters, an Oracle buy of EMC would be extremely expensive, considering EMC's $43.45 billion market cap and all that upside for its virtualization and security properties.

Can Oracle afford it? Sure, although a lot of its shareholders might not agree. At least it could qualify for credit, so financing isn't an issue.

The most important way to look at such a merger/acquisition would be to recognize that this would become not just a larger Oracle, but a conglomeration of some of the most powerful IT companies on Earth: Oracle, EMC, VMware, Sun Microsystems, RSA Security, Data Domain, Iomega, PeopleSoft, BEA and Siebel Systems.

And don't forget dozens of smaller but also important companies that continue to do their own things very well under the large corporate umbrellas of Oracle and EMC.

Does the thought of all this horsepower under the control of one ship captain—Larry Ellison—cause people to cringe in places like Armonk, N.Y.; Palo Alto, Calif.; Round Rock, Texas; and Seattle? You can bet on it.

Will something like this happen anytime soon—meaning this year, or even early next year? People in the know say the answer is no. But a year from now, the situation might be very different.

Oracle, EMC: Two peas in a pod

There are a number of similarities between Oracle and EMC:

• They both know how to sell IT.
• They have fiercely aggressive, independent company cultures, led by tough-minded CEOs.
• They relish their status as two of the world's largest and most successful IT companies.
• They believe they are on track to unseat IBM and Hewlett-Packard as the next big full-service systems provider, especially in the cloud computing space.
• They both play hardball in the marketplace and are very successful at it.
• They would rather acquire than be acquired.

That being said, EMC is a public company and stranger things have happened. In fact, Oracle is also a public company; EMC could be just as likely to buy Oracle. The lesson here: Never assume anything.

Analysts and IT managers contacted by eWEEK did not dismiss the idea of an Oracle-EMC merger but generally didn't think it likely, at least in the short term.

"Except for IBM, Microsoft, Cisco, HP and Oracle, I think any technology company is a potential takeover target," Brian Babineau, senior consulting analyst with Enterprise Strategy Group, told eWEEK.  "The real question is: How likely are some of the rumors being floated out in the marketplace?

"EMC is attractive to the mega-cap technology players because of VMware and a huge hardware install base. That being said, they are going to be very expensive, mostly driven by VMware's valuation and growth prospects, and they will be tough to integrate."

The integration challenge comes from the fact that Oracle will have to swallow and digest two operating companies—VMware and EMC—the latter which has several business units that are making acquisitions of their own (Greenplum, etc.), Babineau said. 

"So, is it possible? Yes. Is it probable? Unlikely, in my opinion," Babineau said.

Next: Why Oracle-EMC Merger 'Makes a Lot of Sense' >>