According to Oracle (ORCL) CEO Larry Ellison, Sun (JAVA) is already losing $100 million a month as it waits for regulatory approval, and judging from the price of the company’s stock today, it may be losing even more than that. Shares in Sun slid to $8.11–about 15 percent below Oracle’s offer price and a far cry from the $9.18 they hit in mid-October.

Clearly, investors are alarmed by this latest turn of events, though industry observers say there’s little reason for them to be. Morgan Stanley, for example, believes Oracle’s acquisition of Sun will win EU approval with few, if any, modifications to the MySQL database software about which regulators are so concerned.

“Based on our diligence, we believe the EC is likely to approve the deal with no remedies or remedies pertaining to MySQL’s licensing,” the research house said in a note to clients today. “It is highly unlikely that Oracle restructures the deal (e.g. spins MySQL) or walks away.”

Morgan Stanley’s call: The deal will go through and at $9.50 per share. As the firm notes, the EU hasn’t blocked a U.S.-based transaction since GE/Honeywell in 2001.

On November 9, 2009, the European Commission issued a statement of objections relating to the acquisition of Sun by Oracle Corporation. The Statement of Objections sets out the Commission’s preliminary assessment regarding, and is limited to, the combination of Sun’s open source MySQL database product with Oracle’s enterprise database products and its potential negative effects on competition in the market for database products. The issuing of a Statement of Objections allows addressees to present arguments in response to the Commission’s preliminary assessment of the competitive effects of a notified transaction. A Statement of Objections is a preparatory document that does not prejudge the European Commission’s final decision. Any final decision by the European Commission is subject to appeal to the European Court of First Instance.

Indignant that the EC would dare to bring the $7 billion deal into question, Oracle vowed to take it to the mat in a harshly worded rebuttal:

Oracle’s acquisition of Sun is essential for competition in the high end server market, for revitalizing Sparc and Solaris and for strengthening the Java development platform. The transaction does not threaten to reduce competition in the slightest, including in the database market. The Commission’s Statement of Objections reveals a profound misunderstanding of both database competition and open source dynamics. It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source.

The database market is intensely competitive with at least eight strong players, including IBM, Microsoft, Sybase and three distinct open source vendors. Oracle and MySQL are very different database products. There is no basis in European law for objecting to a merger of two among eight firms selling differentiated products. Mergers like this occur regularly and have not been prohibited by United States or European regulators in decades.

The U.S. Department of Justice carefully reviewed the proposed acquisition during the normal Hart-Scott-Rodino review and considered it again when the European Commission initiated a second phase review. On both occasions the Justice Department came to the conclusion that there is nothing anticompetitive about the deal, including specifically Oracle’s acquisition of the MySQL database product. The U.S. Department of Justice approved the acquisition without conditions and terminated the waiting period under the Hart-Scott-Rodino Act on August 20, 2009.

Sun’s customers universally support this merger and do not benefit from the continued uncertainty and delay. Oracle plans to vigorously oppose the Commission’s Statement of Objections as the evidence against the Commission’s position is overwhelming. Given the lack of any credible theory or evidence of competitive harm, we are confident we will ultimately obtain unconditional clearance of the transaction.

And Oracle will evidently pursue its case with help from the U.S. Department of Justice’s Antitrust Division, which also issued a statement on the EC’s move today:

After conducting a careful investigation of the proposed transaction between Oracle and Sun, the Department’s Antitrust Division concluded that the merger is unlikely to be anticompetitive. This conclusion was based on the particular facts of the transaction and the Division’s prior investigations in the relevant industries. The investigation included gathering statements from a variety of industry participants and a review of the parties’ internal business documents. At this point in its process, it appears that the EC holds a different view. We remain hopeful that the parties and the EC will reach a speedy resolution that benefits consumers in the Commission’s jurisdiction.

Several factors led the Division to conclude that the proposed transaction is unlikely to be anticompetitive. There are many open-source and proprietary database competitors. The Division concluded, based on the specific facts at issue in the transaction, that consumer harm is unlikely because customers would continue to have choices from a variety of well established and widely accepted database products. The Department also concluded that there is a large community of developers and users of Sun’s open source database with significant expertise in maintaining and improving the software, and who could support a derivative version of it.

The Department and the European Commission have a strong and positive relationship on competition policy matters. The two competition authorities have enjoyed close and cooperative relations. The Antitrust Division will continue to work constructively with the EC and competition authorities in other jurisdictions to preserve sound antitrust enforcement policies that benefit consumers around the world.

• A delayed EC review process of the current proposed acquisition, which may end in a rejection left unchallenged by Oracle
• A renegotiated deal with Oracle, which would likely exclude MySQL and therefore involve a renegotiated deal price
• An offer by IBM (IBM) to buy Sun at a discount to the Oracle offer following a rejection by the EC of the current Oracle deal
• A scrapping of the deal by Oracle

Interestingly, Reid feels this last possibility isn’t as disastrous as it might sound. Sun has $1.8 billion in cash, and while its latest results weren’t at all pretty, they did feature improving gross margins.

“Our current thesis on [Sun] assumes the announced [Oracle] acquisition will close, but risks have increased,” Reid wrote. “There remains a risk that the European Commission will provide a ’statement of objections’ to [Oracle’s] planned acquisition of [Sun] based on concerns regarding [Oracle’s] plans for the MySQL database which [Sun] currently owns. The deadline for such a decision is January 19, 2010 but it is possible that the EC will state objections before the end of the year.”

Elaborating, Reid notes that “Although [Oracle] could likely reduce the risk of a statement of objection–and thus of a delayed or perhaps failed bid for [Sun]–by supplying to the EC an argument to explain why the [Oracle-Sun] deal will not adversely impact competition in the database market, our assumptions around [Sun’s] valuation include increased risk regarding the completion of the [Oracle-Sun] transaction at $9.50….While we believe the currently proposed acquisition by [Oracle] is the most likely outcome for [Sun], we believe other scenarios remain possible, although each is made more difficult by the continued uncertainty around Sun’s fate, and the resulting erosion in customer confidence in Sun.”

According to a 10-Q filing with the Securities and Exchange Commission, Sun (JAVA) lost $120 million, or 16 cents a share, on revenue of $2.24 billion in its first quarter. During the same period a year ago, Sun lost $1.68 billion, or $2.24 a share, on $2.99 billion in sales. Analysts had been expecting earnings of 25 cents a share on revenue of $2.31 billion.

Oracle (ORCL) CEO Larry Ellison recently said that Sun is losing about $100 million a month as it waits for European antitrust regulators to approve its acquisition by Oracle. Looks like he’s about right.

Below, excerpts from the 10-Q:

Server Products Revenue
The decrease in Server Products revenue during the first quarter of fiscal 2010, as compared to the corresponding period in fiscal 2009, was primarily due to the economic downturn and consolidation of our customer base, specifically in the financial services sector, as projects were scaled back, delayed or canceled, in addition to the uncertainty associated with the proposed acquisition by Oracle and increased competition.

Storage Products Revenue
The decrease in Storage Products revenue during the first quarter of fiscal 2010, as compared to the corresponding period in fiscal 2009, was primarily attributable to the economic downturn as projects were scaled back, delayed or canceled, in addition to the uncertainty associated with our proposed acquisition by Oracle and increased competition.

North America
The decrease in revenue during the first quarter of fiscal 2010, as compared to the corresponding period in fiscal 2009, was primarily due to decreased sales of our enterprise Server Products, storage disk products and Services. We are still seeing the results of IT budget cuts instituted last year by our largest customers due to the economic downturn, especially in the financial services sector, in addition to the consolidation of our customer base. Across all sectors, non-critical projects are on hold. Revenue was also negatively impacted by the uncertainty associated with our proposed acquisition by Oracle and increased competition.

PREVIOUSLY:

• European Union Mulling Objection to Oracle-Sun Deal
• Q: What’s the Difference Between Neelie Kroes and Larry Ellison?
• Sun to Sack 3,000
• Former MySQL Boss to EC: Approve Oracle-Sun Deal
• Ellison: Oracle Is the New IBM
• Mr. Ellison Asks That His Burgers Be Served With Freedom Fries Until Further Notice

The Financial Times reports that Oracle’s refusal to offer any concessions to European antitrust regulators may lead them to issue a formal statement of objections to the deal. A complaint could come “within days,” sources tell the FT, though they note that it’s possible that one side or the other will back down before a formal complaint is filed.

If an objection is issued, it will inevitably prolong the entire review process, something Oracle and Sun can ill afford. As Ellison himself recently noted, Sun is losing $100 million a month waiting for approval of the deal.

PREVIOUSLY:

• Q: What’s the Difference Between Neelie Kroes and Larry Ellison?
• Sun to Sack 3,000
• Former MySQL Boss to EC: Approve Oracle-Sun Deal
• Ellison: Oracle Is the New IBM
• Mr. Ellison Asks That His Burgers Be Served With Freedom Fries Until Further Notice

A: Kroes isn’t losing $100 million a month on Sun Microsystems.

Much as Ellison would like to blame the European Commission for yesterday’s bloodletting at Sun, responsibility lies squarely with Oracle (ORCL). For while Ellison complains that every month the $7.4 billion acquisition is delayed amounts to a $100 million loss for Sun (JAVA), he has not yet given the EC good reason to approve it–at least according Competition Commissioner Neelie Kroes, who’s disappointed with Oracle’s cooperation in the commission’s antitrust probe so far.

Kroes said as much in a recent meeting with Oracle president Safra Catz, according to Jonathan Todd, the commission’s spokesman for competition.

“Kroes expressed her disappointment that Oracle failed to produce, despite repeated requests, either hard evidence that there were no competition problems or a proposal for a remedy to the competition concerns identified by the commission,” Todd told Bloomberg. “Kroes reiterated to Catz the commission’s willingness to move quickly towards a decision but underlined that a rapid solution lies in Oracle’s hands. Either they have to give us the information to prove that our competition concerns are not well founded or offer remedies to satisfy our concerns.”

So if Oracle is looking for a quick solution to the case, it best provide one–otherwise, it’s looking at $100 million a month in losses at Sun.

“I understand the European Union has a job to do, but the longer this takes, the more money Sun is going to lose and that’s not good. We want to get it done to save as many jobs as we can.”

– Oracle CEO Larry Ellison

The end of Sun Microsystems as an independent company after 27 years is to be prefaced with a bloodletting. And a big one too. The company is sacking some 3,000 employees as it awaits the closing of Oracle’s (ORCL) planned $7.4 billion takeover.

That’s about 10 percent of its workforce.

The cuts, which were disclosed in a regulatory filing today, are to occur in all markets in which Sun (JAVA) has a presence and will be completed over the next 12 months. Sun expects to incur cash severance and other charges of $75 million to $125 million over the next several quarters as a result.

Seems Oracle CEO Larry Ellison wasn’t kidding when he said further delays in approving his company’s deal to buy Sun would cost more people their jobs.

Ugly news for Sun, which has already made sweeping job cuts over the past year, releasing some 6,000 employees into the wild since last November.

Oracle and Sun have not yet responded to requests for comment.

UPDATE: Oracle has declined to comment on the layoffs at Sun.

“Every new day of uncertainty is potentially very harmful to the various businesses of Sun, reducing competition in the market,” Mickos wrote. “A delay in the closing of this transaction is therefore only going to work against the respectable goal that you set out to achieve when launching the probe into this acquisition.”

Oracle, says Mickos, has far better reason to ramp-up Sun’s MySQL business than it does to harm it.

“Even if Oracle, for whatever reason, would have malicious or ignorant intent regarding MySQL (not that I think so), the positive and massive influence MySQL has on the DBMS market cannot be controlled by a single entity–not even by the owner of the MySQL assets. The users of MySQL exert a more powerful influence in the market than the owner does,” he continues. “Many expected Oracle to harm MySQL as far back as 2005, when they acquired the InnoDB storage engine that plays a crucial role for many MySQL customers. And yet Oracle increased their investment in InnoDB since that time, making MySQL a stronger player in the market.”

An interesting argument and one that appears to offer Mickos little personal gain. Now an entrepreneur in residence at Benchmark Capital, Mickos says he has no financial interest in the transaction. So why bother making it? “I couldn’t live with the fact that I’m not taking action,” Mickos told News.com.

Mickos’s letter will no doubt be welcomed by Oracle, which has repeatedly said it has only the best intentions for MySQL. “No, we’re not going to spin [MySQL] off,” Oracle CEO Larry Ellison told attendees of a Churchill Club event in Silicon Valley earlier this year. “We are keeping everything. We’re keeping tape. We’re keeping storage. We’re keeping x86 and SPARC. And we’re going to increase investment in all of them.”

At Hewlett-Packard.

Quite a coup for HP (HPQ), which clearly hopes Seidl brings a bunch of Sun (JAVA) resellers and customers along with him. And quite a blow for Sun, which is seeing customer loyalty tested to the extreme thanks to the company’s planned takeover by Oracle (ORCL).

“Customers and partners alike, especially those grappling with the uncertainty of Sun’s future, need a technology partner that can eliminate barriers to business growth quickly,” Dave Donatelli, executive vice president of enterprise servers and networking at HP, said in a gloating statement. “We anticipate that Randy’s knowledge of the real business issues faced by today’s CIOs, coupled with his high level of energy, passion for technology and a strong network of channel relationships, will expand HP’s success.”

About 1987 word got out that the Ingres database would soon have a sexy new function: It would be able to do distributed queries… Ellison told [Oracle ad man Rick] Bennett to prepare an advertisement announcing Oracle’s distributed capability. Then he assigned an engineer to whip up a distribtued feature so the company would actually have something to sell when the ad appeared. Ten days later Bennett’s advertisement hit the trade press: “Oracle Announced SQL*Star,” it said. “The First Distribtued Relational DBMS…”

“The fact of the matter was Oracle didn’t have anything,” said George Schussel, the trade show promoter who had followed Oracle from the beginning. “But that was the way they worked. Everything was marketing, everything was image. You simply announced the product and then figured out later how to deal with it from a technological point of view.”

– Excerpt from The Difference Between God and Larry Ellison

If you’re going to claim in an advertisement that Transaction Processing Council benchmarks show that a hybrid Sun-Oracle server runs faster than a competing product from IBM, it’s probably wise to make sure you have the TPC benchmarks to back up your claim.

Not if you’re Oracle (ORCL), though. On Aug. 27, the company ran an advertisement in The Wall Street Journal and the Economist claiming that “Sun + Oracle is Faster” compared to a TPC-benchmarked IBM (IBM) system. “Oracle and Sun together are hard to match,” Oracle said in the ad. “Just ask IBM. Its fastest server now runs an impressive 6 million TPC-C transactions, but on October 14 at Oracle OpenWorld, we’ll reveal the benchmark numbers that prove that even IBM DB2 running on IBM’s fastest hardware can’t match the speed and performance of Oracle Database on Sun systems.”

A boastful claim. Thing is, at the time it was made, the Sun (JAVA)-Oracle system hadn’t yet been audited by the TPC. In other words, it was based on an unsubstantiated benchmark. And that didn’t fly with the TPC, which fined Oracle $10,000 and ordered the software maker to pull the ad. “Oracle’s claim that it is faster than IBM using a TPC-C benchmark result it claimed would be announced on October 14, 2009 was not supported because Oracle did not have a TPC result at the time of publication,” the TPC explained in an official statement. “The TPC requires that claims based on TPC benchmarks must be demonstrable using publicly available data from official TPC benchmark results.”

“No, we’re not going to spin [MySQL] off,” Oracle CEO Larry Ellison told attendees of a Churchill Club event in Silicon Valley Monday evening. “We are keeping everything. We’re keeping tape. We’re keeping storage. We’re keeping x86 and SPARC. And we’re going to increase investment in all of them.”

In other words, technologists worried about Oracle’s (ORCL) intentions for MySQL and other Sun (JAVA) systems need to relax.

“Sun has fantastic technology. We think it’s got great microprocessor technology–it needs a little more investment, but we think it can be extremely competitive. It’s got the leading tape archival systems. We think the Open Storage on their new disk system is absolutely fantastic. Java speaks for itself. Solaris is overwhelmingly the best open-systems operating system on the planet….Sun has been a national treasure for the last couple of decades.”

“If, just for one dollar, if we could buy IBM, HP, Sun or some other tech company, I’m not sure we wouldn’t pick Sun.”

– Oracle CEO Larry Ellison

The European Commission’s inquiry into Oracle’s proposed acquisition of Sun is costing the database giant dearly. Speaking at a Churchill Club event in Silicon Valley Monday evening, Oracle CEO Larry Ellison said Sun is losing $100 million a month because of the extended European antitrust review.

The uncertainty around the deal has sent some shaken Sun (JAVA) customers running to rivals like IBM (IBM) and Hewlett-Packard (HPQ). “The longer this takes, the more money Sun is going to lose, and that’s not good for anybody,” Ellison said. “We want to get this done to save as many jobs as we can.”

That said, Ellison is confident the deal will be approved. “The U.S. took their time and deliberations and cleared it. They said it was overwhelmingly a pro-competitive deal,” he said. “The Europeans have to do their job too, but I think they’ll come to the same conclusion.”

And once they do, once Oracle (ORCL) begins peddling high-performance computer systems that integrate its technology with Sun’s at the engineering level, the company will be well on its way to becoming the next IBM.

In Ellison’s view, anyway.

“I would like us to be the successor to IBM,” Ellison said. “But we want to be T. J. Watson’s IBM. Not Gerstner’s IBM. Not Palmisano’s IBM,” he said, referring to the company’s other CEOs. “That’s when IBM really was the dominant software company.”

Continuing, Ellison noted that “T.J. Watson’s IBM was the greatest company in the history of enterprise in America because its combination of hardware and software was running most of the enterprises on the planet. We think with the combination of Sun technology and Oracle technology we can succeed and beat IBM. That’s our goal. We have a deep interest in the systems business. We think that by combining our software with hardware that we can deliver systems that can be the backbone of most enterprises in America and around the world.”

In a research note issued this morning, Bernstein analyst Toni Sacconaghi wondered whether Oracle (ORCL) might even consider walking away from the deal, though he ultimately concluded that it was unlikely.

“Given ORCL’s repeated and strident commentary, it appears very unlikely that it will walk away from the deal, although it would not face a break-up fee if it did (unlike Sun, which faces a $260+ million break-up fee),” he wrote. “We continue to believe that the JAVA-ORCL deal is very likely to close, but it will be interesting to see if Oracle’s conviction level waivers at all on its earnings call today.”

Indeed. Certainly, there are plenty of reasons to think that it might. For one thing, notes Sacconaghi, Sun’s (JAVA) recent financials are going to make it difficult for for Oracle to hit its promised $1.5 billion in first-year accretion profits.

“Our forecast now calls for [Sun] to be barely break even on a non-GAAP basis next year,” Sacconaghi says, adding that earnings are likely to be nearly $900 million less than he modeled when the deal was first announced. “Accordingly, assuming no material revenue synergies, our analysis suggests that in order to hit its $1.5B accretion target, Oracle may need to reduce Sun’s workforce by 15,000, which represents over 50 percent of Sun’s current headcount and appears implausible.”

So Oracle could hit its aggressive Year One accretion targets. It would just have to gut Sun to do it.

One last point worth noting here. Sacconaghi seems confident the European Union will ultimately approve Oracle’s acquisition of Sun, though possibly with conditions around mySQL. But he thinks approval will take time. And the longer it takes, the worse it will be for Sun, whose business is already suffering from the uncertainty surrounding it.

“…The EU took an average of 140 days between the time that a Phase II [review] was announced and a merger was ultimately approved,” he explains. “Given that Phase II for the JAVA deal was announced on September 3rd, this implies a January date for resolution, and would require JAVA to go through another two full quarters as a standalone company. With uncertainty around the ORCL deal already weighing on JAVA, this suggests the potential for further erosion in Sun’s financials.”

Welcome news for Sun (JAVA) engineers worried they might lose their jobs as a result of Oracle’s (ORCL) surprise acquisition of the company. Bad news for rivals like Dell (DELL), HP (HPQ), and, of course, IBM (IBM). Clearly, Oracle plans to make their lives a lot more difficult.

“The Commission has to examine very carefully the effects on competition in Europe when the world’s leading proprietary database company proposes to take over the world’s leading open source database company,” said Competition Commissioner Neelie Kroes. “In particular, the Commission has an obligation to ensure that customers would not face reduced choice or higher prices as a result of this takeover.”

In short, the Commission’s concern is with Sun’s open-source database, MySQL, and Oracle’s plans for it. A preliminary market investigation has shown “that the Oracle databases and Sun’s MySQL compete directly in many sectors of the database market and that MySQL is widely expected to represent a greater competitive constraint as it becomes increasingly functional,” the Commission explained. The “investigation has also shown that the open source nature of Sun’s MySQL might not eliminate fully the potential for anti-competitive effects.” So the Commission will dig a bit deeper to determine just how much incentive Oracle has to further develop MySQL as an open-source database.

A tough break for Oracle (ORCL), which now has to suffer through an EC probe scheduled to last until Jan. 19, one that increases the chances the company may have to divest some features of Sun’s (JAVA) business to get the deal done.