Itanium Win: So Does Oracle Buy HP Next?

Rob Enderle

Last week, HP won the case against Oracle for breach of contract on Itanium support. What seemed so incredibly bizarre about this whole incident was that Oracle really never had a chance of winning this and seemed to be operating under the belief that HP would just let it go. Oracle has had a number of major legal setbacks of late: Its massive SAP judgment was set aside, its attempt to sue Google left it paying Google’s legal bills, and this latest effort against HP may set records for actual and punitive damages (which will come in the next trial) due to the amount of damage Oracle did to HP’s business.

This brings up the questions: How does Oracle recover? And with HP trading at an all-time low, does Oracle now move to buy HP? You may recall that I speculated back in September 2010 that this was what Larry Ellison was planning through his friendship with Mark Hurd, possibly explaining why he hired Hurd to do a job Hurd wouldn’t have been good at: turning around Sun.

Were Oracle to buy HP, it might either avoid this likely massive judgment or get back much of the benefit with the purchase. And in the end, I still believe Larry wants to build another IBM and Sun just isn’t getting him there.

Would Ray Lane Sell?

We need to start with Ray Lane because he is the executive chairman of HP.  While Larry would love to fire Lane again, it is doubtful that Lane would even enter into negotiations in good faith with Larry. They don’t like each other much, so the first indication that a sale like this might be doable would likely be Ray Lane stepping down as chairman or resigning from the board. Neither has happened and Whitman does not have the authority to drive this effort without Lane’s support. However, this could happen pretty quick if Ellison were to convince a majority of HP’s board and Whitman that this would be a good deal and have them move to oust Lane. Such an effort wouldn’t be beyond Oracle’s capability, but it would be very difficult.

Would Whitman Sell?

The key question then revolves around Whitman as the other gore point. Clearly, HP’s stock performance has been well below what it was with Mark Hurd and HP has historically not had the greatest patience when it comes to underperforming CEOs. Meg Whitman likely is well aware of the fact that if she is removed as CEO, her professional career is pretty much over outside of some declining board seats and maybe another run with Bain Capital. But even there, her worth would be diminished and with the HP layoffs, it is unlikely she could be elected so her political options would be limited to appointments (ambassador etc.), which I doubt she wants.

Were she to sell HP, she likely could dodge at least one of these bullets making the move attractive, except for one thing, and that is the belief that Larry would kick her to the curb on the way in. Larry’s treatment of CEOs from large companies (Sun, PeopleSoft) is both legendary and bad. They made money but, if they’d had a choice, they probably would choose not to sell to Larry again. For Whitman, having her tenure at HP drawn out in a negative light is a very likely outcome of a sale to Oracle and almost certain. She could ask for non-disparagement clauses but given Larry’s disregard for the massive HP contract, betting Oracle would comply with those clauses would be a bad bet and Whitman is smart enough to know this.

So selling to Oracle would be even more certain career suicide than failure at HP would be.

Wrapping Up: Oracle’s Purchase of HP Improbable

This is all before looking at how difficult the financial or regulatory side of this deal would be. While it is likely that Todd Bradley is attempting to drive an outcome like this so he can spin out the PC and printing divisions as his own company — this limiting Oracle’s financial exposure — the result would be a massive expense for Oracle and likely, even with Bradley’s help, more of a hostile acquisition than a friendly one. Oracle’s financials are already under pressure and likely, given it can’t keep a CFO, can’t stand up to deep review. The resulting company and past experience with Oracle’s PeopleSoft acquisition would likely have the European Union blocking this and the U.S. wouldn’t be far behind.

 


This effort would likely put a lot of eyes exactly where Oracle doesn’t need them at the moment and together this makes Oracle’s purchase of HP unlikely. Given the animosity and risks for the critical HP decision makers who would, Bradley aside, have to back this, it is highly improbable this could make it through to successful completion.

 

So it remains very improbable, and likely virtually impossible, for Oracle to buy HP.



Add Comment      Leave a comment on this blog post
Nov 20, 2012 1:51 PM Mark Mark  says:
Now that HP is even lower and there appears will be massive fall out from the Autonomy acquisition, how does that change things? Reply
Dec 27, 2012 1:43 AM rekha rekha  says:
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