Based On Bad Earnings, Could Oracle (ORCL) Walk Out On Sun (JAVA)

By Douglas A. McIntyre Updated Apr 27, 5:24PM EDT · Published Apr 29, 5:03AM EDT

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The term “material adverse effect” was not in the business vocabulary until about two years ago when LBO deals began to fall apart. Acquirers who got cold feet, or could not get bank financing because of the credit crisis, would say that their buyout targets had become damaged goods because of bad earnings or loss of key customers. If was a legitimate case in some instances. The recession had driven down the value of a lot of firms.

Some of the disputes over M&A “material adverse effect” even went to court as companies expecting buyouts tried to force deal to close.

Oracle (ORCL) offered to pay a premium to buy server firm Sun (JAVA). Its final offer, which was accepted, was for $9.50 a share or $7.4 billion. Before Sun became a buyout target, its shares changed hands at below $5.

Yesterday, Sun announced that it had a terrible quarter. Revenue fell from $3.3 billion in the period last year to $2.6 billion. The company’s operating loss went from $16 million to $169 million. In other words, Sun now looked like badly damaged goods.

The earnings reports is a chance for Oracle to lower its offer for Sun. Will the larger company risk a court fight over how much Sun’s fortunes have changed? If $2 billion is involved, it may.

Sun’s shares may be about to head back to where they traded when it had no prospects to be bought.

Douglas A. McIntyre

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.