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EU probes Oracle-Sun deal, cites open-source issue
Associated Press
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Published: 9/3/2009 12:00 AM | Updated: 9/3/2009 10:28 AM

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BRUSSELS -- European Union regulators Thursday launched an antitrust probe into U.S. software maker Oracle Corp.'s takeover of Sun Microsystems Inc., saying they wanted to make sure Oracle wouldn't hinder Sun's rival open-source database software.

EU approval is the main stumbling block for the $7.4 billion deal, which Oracle had hoped to close this summer and has already been cleared in the U.S. by the Department of Justice.

The European Commission now has until Jan. 19 before it makes a final decision to clear the deal or block it. In some cases, such as with Intel Corp., the EU has been a stricter antitrust regulator than the U.S., and often presses companies to make changes that eliminate antitrust worries, such as selling off parts of their business.

EU Competition Commissioner Neelie Kroes said regulators needed to examine whether customers could have less choice or see higher prices "when the world's biggest proprietary database company proposes to take over the world's leading open-source database company."

Sun bought open-source database provider MySQL last year for $1 billion as a way to find more customers for its computer hardware. Because MySQL (pronounced "my sequel") is open-source, its underlying coding is given away for free, and Sun doesn't sell the software itself. In contrast, Oracle is a leading vendor of database software that gets sold to businesses.

Database software forms the underpinnings of most things people do in business or on the Web. It helps companies manage and retrieve data they've stored, such as payroll or sales information. Typing in a search term, for example, forces a Web site to scour a database and spit out an answer.

The EU officials claim that MySQL, already popular among Web-based companies, will increasingly threaten Oracle's database software as it adds features and attracts more customers. The regulators questioned "Oracle's incentive to further develop MySQL as an open source database."

"In the current economic context, all companies are looking for cost-effective (information-technology) solutions, and systems based on open-source software are increasingly emerging as viable alternatives to proprietary solutions," Kroes said. "The commission has to ensure that such alternatives would continue to be available."

Sun and Oracle had no immediate comment Thursday.

EU spokesman Jonathan Todd said the EU was merely matching the U.S. in launching an in-depth investigation into the takeover. Todd stressed that the EU will use the coming weeks to weigh "serious doubts" about the deal -- but that it could pass EU scrutiny unhindered.

The alternative -- if the EU finds that its worries are justified -- would be for the companies to offer remedies to soothe those concerns, such as selling off MySQL or making binding commitments so that rival developers could still base software on MySQL code.

Whatever the Europeans decide, the holdup represents a surprising setback for a deal that was originally expected to sail through antitrust scrutiny and close this summer. A key reason the deal got done in the first place was because Oracle was seen as a safer suitor than IBM Corp., which also bid for Sun. IBM was viewed as a bigger antitrust risk because of the companies' overlaps in the server and data-storage markets.

The EU described the database market as "highly concentrated," with the three main proprietary software companies -- Oracle, IBM and Microsoft -- controlling some 85 percent of the market by revenue.

Peter Alexiadis, a partner at the Brussels office of law firm Gibson, Dunn & Crutcher LLP, said he was surprised that the EU was taking a different tack from the U.S. on the deal.

"If ever there was a case for the U.S. and the EU seeing eye to eye, I would have imagined that this was an appropriate one," he said, saying he was "hard pressed" to see how the deal would strengthen Oracle's position in a global and very varied database market.

"If the commission goes down the path of defining narrow database markets, they might be going down a path they may regret," he said.

Sun shares fell 17 cents, or 1.8 percent, to $9.15 in morning trading Thursday, as investors tried to gauge the risk that Oracle won't be able to complete the deal. Oracle would pay $9.50 per share if the deal is completed.

Oracle shares fell 41 cents, 1.9 percent, to $21.36.

Oracle's bid for Sun marks new territory for the company, turning it into more of a one-stop technology shop, like IBM Corp. and Hewlett-Packard Co. Sun is the world's No. 4 maker of computer servers, which power Web sites and corporate back offices. In many cases those servers run database software such as mySQL or Oracle products.