Stock Groups

Oracle’s Larry Ellison chooses profit over growth in Cerner deal

[ad_1]

Larry Ellison, Oracle Chief Technology Officer and Chairman of the Board, delivers the keynote speech at the Oracle OpenWorld conference held in San Francisco, October 22nd 2018.

Justin Sullivan | Getty Images

His 44-year tenure has been a record. Oracle, Larry EllisonNever spent that much money. Not even close.

Oracle’s announcementThe company’s announcement Monday of its purchase Cerner medical software vendor Cerner was a monumental deal. Cerner is once again regarded as the great consolidator in the software industry.

Oracle has spent at least $1Billion on 15 acquisitions since 2005. Seventeen of these transactions exceeded $5 billion. Oracle had a record 2009 revenue of $5 billion. agreed to pay $7.4 billionSun Microsystems has opened its wallet for storage and servers to allow it to expand beyond the software business and transform into what Ellison calls an “integrated-system” company.

Ellison has only been involved in a transaction worth at least $10 million once before this week. This was in 2004. Oracle bought PeopleSoftFor $10.3 Billion after a bitter battle which lasted 18 months.

In agreeing to buy Cerner for almost three times the price of PeopleSoft, Oracle is jumping into the modern era of M&A, one that in recent years seemed to pass Ellison by. As the world becomes more cloud-driven, mobile and data driven, rivals have used increasing market caps and growing cash reserves to purchase growth and to enter markets that will keep them relevant.

This is the Oracle’s first major deal since its $9.3billion purchase of cloud-based business management software vendor. NetSuiteIn 2016, In 2016, Ellison was Oracle’s Chairman and NetSuite’s largest shareholder with ownership of $1.5 billion. roughly 40%The company’s current status at the time the deal was made.

Analysts at Stifel wrote that if the deal is completed, it would be a return back to Oracle’s aggressive acquisition activities during which Oracle very efficiently rolled up the legacy client-server space.” This report was issued late last week, after the news about a possible deal broke. This time, the sector is experiencing strong secular growth due to an architectural shift toward the cloud.

In this single year, SalesforceSlack’s $27.1 million purchase was completed. SquareAustralian Fintech Company to be Purchased AfterpayFor as low as $29 billion MicrosoftIt said that it is buying speech recognition software provider Nuance CommunicationsFor $16 billion ZoomAcceded to the purchase of a contact center software company Five9For $14.7 Billion in Stock The deal was rejected by Five9 shareholdersA slide in Zoom’s stock price rendered a combination attractive.

If Cerner stockholders are allowed to approve the purchase, Oracle will make Cerner one of the most significant software acquisitions ever. In 2019, the biggest deal was made. IBMIt closed at $34 billion purchase of Red Hat.

Cerner was established in 1979 two years after Ellison’s creation of Oracle. It is now the second largest provider. electronic medical records technologyEpic is owned by Epic. Software is available for hospitals and medical centers to share images, reports and prescriptions securely with staff.

After the announcement on Monday, Oracle shares dropped 5%. The purchase price of $95 per share represents a 20% premium to Cerner’s Thursday closing price, before news that Cerner was in advanced talks.

Increased debt is possible

The transaction, despite Monday’s decline in earnings, comes amid renewed Wall Street optimism about Oracle. Oracle reported its earnings on December 10, following a more than expected report. stock shot up 16%This was its second best day in 20 years. The shares are up 42% this year, double the gains in the S&P 500, and they reached a record last week.

Oracle will pay cash to Cerner rather than take advantage of the stock’s appreciation. This is a heavy burden for an organization that had $23 billion in cash at the end of last year. end of the latest quarterOracle typically generates around $12 billion per year of free cash flow. Oracle has not provided any details about the financing of this $28.3 Billion deal.

An insider said that Oracle wouldn’t need to take out debt because of the cash available and additional cash expected to be created by the closing. Because the information is confidential, the person requested not to be identified.

Ellison might be big but he isn’t interested in the deals Salesforce pursues. Marc BenioffEllison, his first job at Oracle was where he met Jeremy. Slack has been the focus of almost 50 billion dollars in Salesforce’s combined spending. Tableau MuleSoftOver the past 3+ years, profit has been over priority for growth and new opportunities in markets.

Marc Benioff is the chairman and chief executive officers of Salesforce.com. He speaks to the crowd during the grand opening ceremonies at Salesforce Tower San Francisco.

David Paul Morris | Bloomberg | Getty Images

Cerner is like Oracle but slow growing and able to generate cash. This contrasts with most subscription-based software companies. The annual growth rate has fallen to less than 1% since 2015. Sales declined 3.3% between 2015 and 2020. On pace for revenue growth of about 5% by 2021, to $5.8 billion.

Cerner will generate nearly $1 billion this year in net income. Safra Catz CEO of Oracle stated that the acquisition would be “immediately beneficial to” non GAAP earnings the year following close. He also said that it will contribute “substantially more to earnings the second and subsequent fiscal years.”

Ellison will be particularly interested in Cerner’s recent move to AmazonWeb Services. Web Services. “Project Apollo”It would be run on AWS infrastructure, and clients could access cloud technology.

Oracle is a late entry to cloud infrastructure, trailing Microsoft, AWS and Microsoft. GoogleMarket share Ellison is not content to concede defeat. tout Oracle’s cloudAWS can sometimes be compromised by capabilities

All indications are that Ellison considers Oracle’s Cloud the ultimate home for Cerner’s future migration.

Oracle executive vice president Mike Sicilia said that Oracle’s technology allowed him to “really modernize Cerner’s systems.” In his deal press release, the term “cloud” appears eleven times.

Oracle also stated that “Cerner systems on the Oracle Gen2 Cloud” will be accessible 24x7x365, and “the goal is to provide zero unplanned downtime for the medical environment.”

WATCH: Oracle in talks to buy Cerner

[ad_2]