EMC-Oracle Merger? A Failure by Design

Rob Enderle

Current speculation is suggesting that Oracle's next acquisition might be EMC. While that is causing investors to bid up EMC stock, it is likely causing technology buyers to pause. This is because Oracle is gaining a Computer Associates-type reputation, and this reputation has some IT buyers not only avoiding Oracle, but any company that Oracle might buy. Given how large EMC is and how many customers it has, the outcome is clearly important. Personally, I think the merger is unlikely, and, if it were done, unlikely to be successful for three primary reasons: Acadia, culture and Oracle executive conflict.


Death of Acadia


Acadia is the joint project between EMC, Cisco and VMware to create massive virtualized solutions for large enterprises. It uses VMware's virtualization offerings, Cisco servers and networking, and EMC storage solutions. For such a high-end offering, it has been doing reasonably well. The Cisco server component competes with Oracle's hardware offerings, and Oracle doesn't do the mix of competition and cooperation well. Look at the drama between Oracle and HP since the Sun merger. And if the Google litigation is an example, Oracle doesn't like to share much, either. Acadia easily represents a multi-billion dollar opportunity for EMC and its subsidiary VMware, and that much off the top line would make justifying the purchase vastly more difficult.




Oracle doesn't do the hands-off subsidiary approach to mergers. It plows the purchased entity into the parent and is in the process of creating an IBM-like umbrella structure with Sun. Meanwhile, EMC's success with acquisitions largely has to do with knowing when to leave some of them alone. VMware is the successful example of that approach. In addition, EMC is an East Coast, low-pressure, customer-oriented company, while Oracle is West Coast, high-pressure revenue-oriented. The two would likely come together badly with massive executive departures and clashes over policy. Both models are clearly successful, but transitioning between them would be painful for EMC employees and customers. Many of those customers gravitated to EMC because of its high level of care and likely would balk at Oracle's much higher economic focus.


Oracle Executive Conflict


Large mergers are difficult to do and are rarely successful. The HP merger with Compaq succeeded only because of the preceding proxy fight. It forced HP to do an unusual amount of preparatory work to gain the support of the large institutional investors. That also seemed to settle inside resistance to the effort. But new Oracle exec Mark Hurd doesn't like doing acquisitions, and Co-President Safra Catz would likely be driving this. Hurd is being positioned as No. 2 to Larry Ellison, a position Catz has unofficially occupied for years. The two executives likely realize that their long-term survival at Oracle will require that one of them leave.


That being the case, I can foresee a situation in which Hurd might quietly work to make sure the acquisition failed (which they generally do anyway). He used a similar tactic to displace Patty Dunn at HP. (Highlighted in the book "The Big Lie." )


Catz is no dummy, though, and would likely work to show that any efforts against the acquisition were clearly against Oracle's interests.


The result would be more difficulty in gaining approval for the merger, with both key executives working to make sure the other was blamed for the failure. The only thing certain is that it would, in fact, fail.

Wrapping Up: Not Even Good on Paper


Mergers of this scale rarely work. The differences in culture and the head-to-head conflict that is likely growing in Oracle over the No. 2 spot in the company alone would make this merger a disaster in the making. When you toss in the likely collapse of Acadia and the massive loss in potential revenue that would result, you get a no-go even if the EMC executive staff were for this, and there is no indication that they are. In fact, EMC has been performing solidly and has a deep bench for follow-on executive development. It doesn't appear interested in a marriage with Oracle at all. This would make the merger a hostile acquisition, which would be even less likely.


Only Hurd has the potential to benefit from such a possible deal, and given the difficulty of pulling it off, even he must be advising against it.

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