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Sun Corruption Probe, Lawsuits Could Complicate Oracle Takeover by Jeff Moad • Sign up to receive ME Daily News Alerts • POSTED on Monday, May 11, 2009 3:35:47 PM |
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In a development that could complicate its acquisition by Oracle Corp., Sun Microsystems Inc. said in SEC filings that it recently discovered internal activities in unidentified foreign countries that may have violated the U.S. Foreign Corrupt Practices Act.
At the same time, also in federal filings, Sun said it is facing three shareholder class action suits alleging that Oracle’s proposal to pay $9.50 per share, or $7.4 billion, for Sun is “unfair and inadequate.”
Sun disclosed the potential violation of federal FCPA regulations in documents it filed with the SEC in connection with its recent third-quarter earnings. Sun indicated that it conducted an investigation of the alleged violations using outside legal counsel and that it has taken unspecified “remedial actions.” Still, the company acknowledged that the alleged violations could lead to criminal charges and/or fines and could have a material impact on its business.
In its own SEC filing, Oracle said it had been made aware of the possible FCPA violations prior to signing the definitive agreement to buy Sun on April 20. Oracle officials did not say whether the disclosure or the pending shareholder suits will affect its offer to buy Sun. In a report published last Thursday, however, Oracle Chairman and CEO Larry Ellison indicated that Oracle plans to go through with the deal and to retain Sun’s hardware business, including its SPARC microprocessor product line.
Though few details of the possible FCPA violation have emerged, experts today said the revelation is unlikely to derail the acquisition by Oracle. “It’s not uncommon for some practices to be questionable when run by distributors, third-party resellers, and sometimes country managers, where stated and actual business practices differ,” said Ray Wang, a vice president at Forrester Research. “I don’t think this would be enough grounds to derail a deal, but more details will have to emerge.”
Sun would not be the first technology vendor to have run afoul of FCPA regulations. In December 2008, automation technology vendor Siemens, for example, settled allegations that it had violated FCPA laws, paying hundreds of millions of dollars in fines in the process.
Meanwhile, Sun said shareholder lawsuits objecting to the Oracle acquisition were filed in Santa Clara County Superior Court on April 20 (the day the deal was announced) and April 30. The suits, Sun said in a federal filing, name Sun, Sun officers and directors, and Oracle as defendants. The complaints seek to stop the acquisition, and they allege breach of fiduciary duty against the defendants.
Sun officials declined to discuss the merits of the suits.
At the end of last month, just over a week after announcing the planned Oracle acquisition, Sun reported a marked slump in third-quarter revenue and earnings. Blaming the worldwide recession, Sun said sales fell 20% to $2.6 billion. For the period ended March 29, Sun lost $201 million, or $0.27 per share.
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