2. Assuming with-synergies valuation of Sun Microsystems:

a. What rate of return (WACC) should Oracle require on the acquisition? Show detailed calculation of WACC.

b. What with-synergies cash flows do you forecast? Show in Excel spreadsheet with correct cell formula.

c. What is your estimate of terminal value? Show detailed calculation of terminal value.

d. What is the enterprise value of Sun Microsystems? What is the equity value?

e. If a competing bidder appears, how high a price should Oracle be willing to offer?

ONLY ANSWER 2 A,B AND C

ITS REALLY IMPORTANT.

un Microsystems Oracle will be the only company that can engineer an integrated system-application to disk- where all the pieces t together so the customers do not have to do it themselves Oher customers benefit as their systems integration costs go down while system performance, Teliability and sectaity Larry Ellison CEO, Oracle Corporation It was the first time in the last two weeks that Margaret Madison, a member of Ora cle's corporate development team, had not stayed in the office until two in the morn- ing. At the close of business earlier that day, Friday, April 17, 2009, Oracle had put in an offer of $7.38 billion, or $9.50 per share, to acquire Sun Microsystems. Only nine months into her position, Madison, a recent MBA graduate, had found herself to be a member of Oracle's valuation team, assessing a potential merger with Sun. The journey, however, was not over yet. Sun had a number of potential suitors, IBM stand- ing prominently among them, and Madison and her colleagues expected IBM to counter Oracle's offer. Oracle, a California-based business software company, was one of the world's largest and most reputable sellers of database management systems and other related software. With $23.6 billion in annual revenue, the company was a leviathan, led for ward with lightning speed by the only CEO Oracle had ever had, Larry Ellison. Sun was nothing to scoff at either. Once the darling of Silicon Valley, it had fallen on tough times but was still competitive. Sun had started as a hardware and servers pro- ducer, but over the years, it had established a solid position in the software industry with its Java programming language, Solaris operating system, and MySQL database management software. Combining these two companies had the potential to create the Wal-Mart of the enterprise software industry. Ellison "had a vision for creating an end-to-end vendor Ithat] clients go to for all their technology" needs. 'oracle Buys Sun" oracle Corporation press release, April 20, 2009 Jerry Hirsch and Alex Pham, "With IBM out. Oracle Jumps in to Buy Sun for ST.4 Billion. Los Angeles Times, April 21, 2009 This case was prepared by Eric Varney (MBA Assistant Professor of Business Administration Elena Loutskina, it was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation, Copyright 2010 by the University of Virginia Darden School Foundation, Charlottesville, VA All rights reserved. To onder copies, send an e-mail to sales@ ng.com. No part of this publication may be reproduced, stored in a retrieval system, dardenbusinesspubl readsheet, or transmitted in any form or by any means-electronic mechanical photocopying, lured in a recording or otherwise without the permission of the Darden School Foundation. 671 un Microsystems Oracle will be the only company that can engineer an integrated system-application to disk- where all the pieces t together so the customers do not have to do it themselves Oher customers benefit as their systems integration costs go down while system performance, Teliability and sectaity Larry Ellison CEO, Oracle Corporation It was the first time in the last two weeks that Margaret Madison, a member of Ora cle's corporate development team, had not stayed in the office until two in the morn- ing. At the close of business earlier that day, Friday, April 17, 2009, Oracle had put in an offer of $7.38 billion, or $9.50 per share, to acquire Sun Microsystems. Only nine months into her position, Madison, a recent MBA graduate, had found herself to be a member of Oracle's valuation team, assessing a potential merger with Sun. The journey, however, was not over yet. Sun had a number of potential suitors, IBM stand- ing prominently among them, and Madison and her colleagues expected IBM to counter Oracle's offer. Oracle, a California-based business software company, was one of the world's largest and most reputable sellers of database management systems and other related software. With $23.6 billion in annual revenue, the company was a leviathan, led for ward with lightning speed by the only CEO Oracle had ever had, Larry Ellison. Sun was nothing to scoff at either. Once the darling of Silicon Valley, it had fallen on tough times but was still competitive. Sun had started as a hardware and servers pro- ducer, but over the years, it had established a solid position in the software industry with its Java programming language, Solaris operating system, and MySQL database management software. Combining these two companies had the potential to create the Wal-Mart of the enterprise software industry. Ellison "had a vision for creating an end-to-end vendor Ithat] clients go to for all their technology" needs. 'oracle Buys Sun" oracle Corporation press release, April 20, 2009 Jerry Hirsch and Alex Pham, "With IBM out. Oracle Jumps in to Buy Sun for ST.4 Billion. Los Angeles Times, April 21, 2009 This case was prepared by Eric Varney (MBA Assistant Professor of Business Administration Elena Loutskina, it was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation, Copyright 2010 by the University of Virginia Darden School Foundation, Charlottesville, VA All rights reserved. To onder copies, send an e-mail to sales@ ng.com. No part of this publication may be reproduced, stored in a retrieval system, dardenbusinesspubl readsheet, or transmitted in any form or by any means-electronic mechanical photocopying, lured in a recording or otherwise without the permission of the Darden School Foundation. 671