Will Oracle or IBM Start a Bidding War with HP over Autonomy?

I’ve heard a fair bit of discussion about whether IBM or Oracle is likely to step in and start a bidding war for Autonomy which HP last week announced that it will buy for $42.21 per share, or $10.2B, as discussed last week in Kellblog when the rumors first surfaced.

My opinion — and this is an educated guess / speculation only — is that the answer is no.  Here’s why:

  • I’m told by those who’ve analyzed the deal that it is a very target-friendly deal on contractual terms as well as price.  HP wants this deal to happen.
  • I’m also told that HP is moving through the acquisition process with great speed.  HP wants this deal to happen.
  • I’m also told that HP is messaging that the deal is not just about buying into unstructured data but also about getting Autonomy’s CIO-level relationships that are supposedly superior to HP’s.  While I’m not sure that Autonomy has great CIO relationships (think:  “let Jimmy here tell you how much you’re going to pay next year”), that’s not the point.  The point is if that HP believes it, the deal becomes about protecting the core as much as about expanding into software which again would suggest that HP wants this deal to happen.
  • Because HP wants the deal to happen, I suspect the deal was not shopped and the first Oracle or IBM heard about it was the announcement.  If that’s true, then they didn’t get a chance to bid (and/or not bid) before the deal was announced.  But if that’s true, HP had to offer a market-clearing price such that Autonomy could accept the deal without shopping it.  That’s how you get a 70% premium to the market.
  • Oracle can move quickly.  The biggest reason that I think Oracle will not start a bidding war is that they haven’t already.
  • I’m told that Oracle investor relations is making comments along the lines of  [not verbatim] “if we were worried about Autonomy as a competitor, we couldn’t think of a better place for it to land than HP.”  And my guess is they believe that.   I suspect Oracle is more bummed about Clearwell slipping away (a leading pure-play e-discovery solution) than it is about a mini-me of document-oriented solutions (i.e., Autonomy) with a mere $250M/quarter spanning numerous categories including enterprise search, web content management, e-discovery, and digital archiving with over 40 products in a product line built through inorganic growth.
  • If either Oracle or IBM cared about a document-oriented, unstructured data platform, they could acquire other companies (e.g., MarkLogic!?)  for a lot less than $10B.  If they care about enterprise search, they could buy one of many small vendors in that space or put (more) wood behind Lucene and Solr.  They already have offerings in web content management and e-discovery.  The key point is that if you de-construct Autonomy, Oracle and IBM either already have or could easily buy each of the pieces.  Buying them all-in-one at discount?  Maybe.  At $10B for the starting bid?  Methinks not.

I’ve been wrong before and I’ll be wrong again, but I just have a lot of trouble seeing a bidding war on this deal.  It reminds me of the Sun / MySQL deal where a hardware company paid a hefty multiple for a deal they decided is absolutely strategic to their future.   You usually don’t get bidding wars on those because the purchaser precludes them by offering a market-clearing price.  And $10B for Autonomy strikes me as a market-clearing price.

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3 responses to “Will Oracle or IBM Start a Bidding War with HP over Autonomy?

  1. It will be interesting to read the Proxy when it comes out and see who approached who first and just what kind of back and forth happened. Knowing some of the players involved, I have a real time imagining that the deal wasn’t shopped at all.

    That said, I agree that it looks like a preemptive “knock out bid” but if it was then I really don’t understand why HP rushed it as opposed to waiting to get the other elements of their strategy (i.e. the spin-off) in place first. Committing almost all of your spare cash before you have the PC situation resolved is either very ballsy or very desperate.

  2. I suspect that the deal has some sort of breakup fee as well that would make the total cost to a competitor significantly higher. If, for example, Autonomy has to pay a 10% breakup fee to HP if they terminate the deal, then that means any higher offer has to be 10% higher just to break even. Breakup fees go both ways, making it a risk for HP, but without one, HP would be crazy to announce in advance of closing the deal.

  3. I spoke too soon. With today’s news about Apothoker potentially being ousted as well as the revelation that the break-up fee is only $116M, I am thinking this deal could very well blow up in the next week.

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