Tech behemoth Oracle Corp. (NYSE: ORCL) announced today (Monday) that it's buying MICROS Systems Inc. (Nasdaq: MCRS) for $5.3 billion, a move aimed at expanding its software offerings in the hospitality and retail segments.
After ORCL stock slumped 6.5% in after-hours trading last Thursday on the heels of a big Q4 earnings miss, the acquisition might be just the thing to nudge ORCL shares higher.
Oracle will pay $68 for each share of MCRS, a 3.4% premium to MICROS's Friday close. The deal is expected to close in the second half of 2014.
This isn't the first time ORCL has courted MCRS. The first attempt came six years ago. But amid last-minute negotiations, the deal fell through.
But now MCRS is bigger - and a better buy.
Why Oracle Is Buying MICROS Systems Inc. (Nasdaq: MCRS)
Columbia, Md.-based MICROS, founded in 1977, now has more than 6,300 employees. It sells Internet-connected cash registers and also specializes in providing technology for the hospitality and retail industries through point-of-sale, e-commerce, and management software.
Its systems are installed in table and quick-service restaurants, motels, hotels, casinos, and other locations dotted across 180 countries.
It's that vast reach and specialization that Oracle deems lucrative.
"Oracle has successfully helped customers across multiple industries harness the power of cloud, mobile, social, Big Data, and the Internet of things to transform their businesses," Oracle President Mark Hurd said in a statement. "We anticipate delivering compelling advantages to companies within the hospitality and retail industries with the acquisition on MICROS."
In fiscal 2013, MICROS booked revenue of $1.29 billion. Over the last three years, growth has been impressive, in the low double-digit range. The company forecasts revenue of $1.37 billion in fiscal 2014, which ends this month, according to Bloomberg.
According to Peter Altabef, MICROS' president and chief executive officer (also a former Dell executive), the deal will help customers "to innovate and differentiate their businesses by utilizing Oracle's technologies, cloud solutions, and scale."
Oracle, late to cloud computing, has some catching up to do.
Last week, following Oracle's fiscal fourth-quarter earnings that missed analysts' estimates,
FBR Capital analyst Daniel Ives said in a research note that company executives "have some work ahead of themselves to morph Oracle into its next phase of growth around attacking the cloud."
And that growth will likely come from acquisitions...
Oracle (NYSE: ORCL) to Get Boost from Cloud Computing Acquisitions
The MCRS buy is likely just the first of many. Expect more transactions from the Redwood-Calif. serial acquirer.
Over the last decade, Oracle has spent $50 billion to acquire some 100 companies. On a dollar scale, the MCRS transaction is Oracle's biggest since buying Sun Microsystems for $7.4 billion in 2010.
Oracle's big hope is that MCRS will add revenue to its lagging cloud computing segment.
While Oracle's revenue from software used in cloud computing rose by 25% in Q4, it only generated $322 million. That's evidence that Oracle, which sells roughly $4 billion worth of software per quarter, trails in the cloud arena.
Oracle CEO Larry Ellison, however, was quick to tout Oracle's progress in the area of cloud computing following the earnings report that disappointed Wall Street.
Ellison maintains Oracle's cloud revenue numbers mean it's on its way to becoming the second-largest cloud computing vendor in the world. He pointed out that yearly sales of the No. 1 player, Salesforce.com Inc. (NYSE: CRM), are less than half of what Oracle makes in software in one quarter.
Still, Oracle needs to "go on the deal warpath" to expand its presence in emerging areas of corporate technology, where it presently doesn't reap much revenue, according to Ives.
The MCRS purchase could be the start of Oracle's battle to become a key cloud player.
Indeed, Oracle has about $39 billion in cash and marketable securities on its balance sheet. And with a market cap of $190 billion, it has plenty of clout, money, and muscle.
Yet, there's a lot more to like about Oracle than its size.
It's a strong company backed by good technology. CEO Larry Ellison has vision and is a savvy acquirer. Shares trade at less than 12 times next year's projected earnings (not including cash).
Oracle doubled its dividend last June to $0.12 a share quarterly, or $0.48 annually. It also authorized the repurchase of an additional $12 billion of common stock under its existing share repurchase program in future quarters - that's nearly 8% of Oracle's outstanding shares.
Just before noon, ORCL stock rose 0.67% to $41.10. MCRS shares, meanwhile, jumped 3.4% to $68.01.
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