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Friday, October 15, 2010
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Acquisition rumors build and fizzle around EMC and Oracle
By Kyle Alspach
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A rumor about Oracle seeking to buy EMC has fizzled after just a day, and with good reason.
“I think it’s a pretty far-fetched concept for a number of reasons,” analyst Charles King said today.
On Thursday, speculation about a possibly gargantuan acquisition of EMC (NYSE: EMC) reportedly sent shares in the Hopkinton storage firm up nearly 5 percent at one point. The share price has been flat today, and an EMC spokesman said the company won’t comment on “rumor and speculation.”
Though there’s confusion about how exactly it circulated, there’s agreement among many analysts on one thing about the rumor: It’s nothing more than that.
With a market cap north of $43 billion, snapping up EMC would clearly be an expensive proposition – and Oracle doesn’t have that kind of cash on hand, said King, of California-based Pund-IT.
Another sticking point: EMC owns an 80 percent stake in VMWare. The server virtualization firm is relied upon by Oracle’s competitors – HP, IBM, Dell and Cisco among them – and Oracle could run into regulatory problems in trying to buy into VMWare, King said.
In addition, VMWare has thrived through EMC’s “hands-off approach,” said Matt Bryson, an analyst at Avian Securities in Boston. That would be much harder for Oracle, which is in the server business, to accomplish, Bryson said. “I don’t see how they could,” he said.
So if an acquisition of EMC by Oracle wouldn’t make sense, how did the rumor get legs?
Bryson said most reports are tracing it back to a Citigroup analyst’s report on Tuesday. The analyst included EMC on a list of potential acquisition targets of Oracle, though specified that EMC is a “long shot” for Oracle.
How it spread from there – and turned from “long shot” into “likely” – isn’t completely clear.
There’s rumors about that, too.
An eweek.com story says, without attribution, that Bryson actually was responsible for starting the rumor – which, Bryson said, he wasn’t, since he doesn’t even believe the rumor is credible.
But he does have some idea about what factors may have led the rumor to spread – namely, a large amount of M&A activity in the tech world and depressed company valuations.
“In this climate,” Bryson said, “any type of acquisition rumor, I think, has more credibility lent to it than is typically the case.”
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