Should Oracle Buy Veritas?
Veritas Software Corp. (Nasdaq: VRTS - message board) should consider "strategic alternatives" -- including a potential merger with Oracle Corp. (Nasdaq: ORCL - message board) -- says research firm RBC Capital Markets in a note issued today.
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But a long-time observer of both companies believes the chance of an Oracle/Veritas hookup is remote, saying the pairing would be unworkable on several fronts.
RBC, engaging in a bit of Friday-morning quarterbacking, says the current valuation of Veritas should prompt the company to consider merging with a larger player. Veritas has a market cap of more than $7 billion; its stock is trading around $17.50, up from a one-year low of $11.73 in mid-October (see Veritas Numbers Add Up and Veritas Fires Veteran CFO).
The Wall Street firm says two obvious Veritas suitors are EMC Corp. (NYSE: EMC - message board) and IBM Corp. (NYSE: IBM - message board) but that Oracle is also a plausible candidate.
"An Oracle/Veritas combination could accelerate the strategic roadmap of each company," RBC's analysts write. "Oracle may need to respond to IBM, Microsoft Corp. [Nasdaq: MSFT], and Sun Microsystems Inc. [Nasdaq: SUNW]. Each of these vendors views storage software as a critical strategic control point in the data center."
The speculation comes amid IBM's announcement today that it will buy Rational Software Corp., a maker of software development tools, in a deal worth $2.1 billion -- Big Blue's largest software acquisition since it bought Lotus Development Corp. in 1995.
A deal to buy Veritas would be even bigger. But why would Oracle want Veritas? RBC says buying Veritas would be in line with Oracle's efforts to expand into the data center. Both Oracle and Veritas are strong in the Unix space, and both see Linux as the key in moving into the Intel world. "Together, they might accelerate the adoption of Linux as an enterprise-class operating system while countering Microsoft's push into the storage arena," RBC writes.
Still, the firm notes, such a move would be unprecedented: "Oracle has not demonstrated a willingness to make large acquisitions in the past." RBC maintains its Underperform rating on Veritas.
RBC analysts declined to comment beyond what they wrote in the research note. Oracle and Veritas representatives also flashed us the "no comment" cue card.
But a former Veritas executive, who wished to remain anonymous, says the deal doesn't make strategic sense for Oracle.
"I don't see Oracle moving down the stack," the source says. "Veritas is an infrastructure provider with little application awareness." Instead, he suggests, Oracle should be expanding its "application execution value," perhaps by buying a company like Mercury Interactive Corp.
The egos of the companies' CEOs would also certainly come into play. "[Oracle CEO Larry] Ellison would not buy a company run by [Veritas CEO Gary] Bloom, who at one time was touted as No. 2 at Oracle," our source says. "Oracle execs look down on Veritas, seeing it as just infrastructure without any significant application value."
Meanwhile, Cisco Systems Inc. (Nasdaq: CSCO - message board) is another potential player rumored to be sniffing around Veritas. The two companies are working together to develop virtualization features for Cisco's forthcoming MDS 9500 Fibre Channel switch (see Cisco Ducks the Veritas Question and Veritas Puckers Up for Cisco).
There's no evidence a bidding war over Veritas is brewing. But this space is certainly worth watching.
— Todd Spangler, US Editor, Byte and Switch
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