Larry Ellison’s Oracle Corporation (NYSE:ORCL) announced a $10 billion seven-part benchmark bond issue to pay for the $5.3 billion acquisition of MICROS Systems, Inc. (NASDAQ:MCRS) that was closed last week, Bloomberg News reports. The bond issue will include three and five-year floating rate notes, and five, seven, 10, 20, and 30-year fixed-rate bonds, and the extra cash will likely be used to rollover older bond issues and pay for stock buybacks. Oracle said that it intends to sell its ten-year bonds for about 100 basis points more than 10-year Treasuries, but final pricing hasn’t come in yet.
Oracle has been buying growth for a decade
Oracle has been chasing growth through M&A for years, with $50 billion spent on roughly 100 acquisitions in the last decade. Even with all those purchases, sales growth has been capped at 4% for the last eleven quarters, sometimes going negative, as the shift to cloud services leaves the tech giant behind.
These Are John Buckingham’s Stock Picks For 2021
The economy remains in distress, although there are signs of recovery underway. John Buckingham of Kovitz, editor of The Prudent Speculator newsletter, has found that value stocks typically outperform coming out of economic downturns. Thus, he argues that this is an excellent time to be a value investor. Q4 2020 hedge fund letters, conferences and Read More
But even with so many recent acquisitions, and plans to pick up a handful of more companies before the end of this year, the MICROS Systems deal is the largest since Oracle bought Sun Microsystems in 2010. Taking advantage of the historic low interest rates makes sense, but when the rest of the company is still struggling after it missed the transition to cloud computing, investors may be skeptical that tacking on another company will turn things around.
Oracle ended the day down slightly, but there wasn’t enough of a price move to say that the market strongly reacted to the announcement. Considering Oracle issued $3 billion last year in a three-part sale, investors probably expected some sort of security issue to be announced and had already priced it into the stock.
Oracle tumbled after earnings miss, while MICROS share went through the roof
Oracle had a rough March just like the rest of the tech sector (and a rough February like the rest of the market), but it recovered and was back on trend until it reported an earnings miss earlier this month, just as MICROS Systems shares were soaring so high that trading had to be halted. Whether investors think the acquisition will help Oracle rebuild sales growth or just destroy value is being overshadowed over disappointment over weak 2013 numbers, but Micros shareholders are clearly thrilled to be paid a premium for their company.