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BNFN 4304 – Financial Policy
Mr. Masood Aijazi
Case 48: Sun Microsystems
Spring Semester 2017 – 2018
Authored By
Maryam Barifah1420023
Nour Abdulaziz1420149
Yara El-Feki1410435
Balquis Mekhlafi
1410231
Shrouk Al-Jaaidi 1420072
Submission Date
10/05/2018

Guidance Sheet
Synopsis
This case calls for students to reevaluate the price Oracle
should pay to acquire its long-term business partner, Sun
Microsystems. The emergence of new suitors (e.g., IBM) forces
Oracle’s corporate development team to go back to the drawing
board and reevaluate all the assumptions they have made in
putting together the initial bid of $7.38 million, or $9.50 per
share, on April 17, 2009. Students are invited to value Sun’s
stock and take a position on whether there is any room left to
sweeten the offer if a bidding war unfolds. The case outlines the
Oracle strategy and how long-term partnering with Sun
contributed to it to date. It also allows for an in-depth
discussion of the changing competitive landscape of the
technology industry.
The case is an exercise in valuing a potential acquisition target.
It presents an opportunity for students to develop appreciation
for valuing a company using both discounted cash flow and
multiples in their analysis. Particular attention should be paid to
the inclusion of synergies and their relevance to the valuation.
The bidding dimensions of the case are highlighted by the
presence of other potential acquirers.
Objectives
The primary objectives of this exercise are to introduce or

reinforce valuation tools in the context of mergers and
acquisitions:
1. Analyzing a variety of strategic, organizational, financial,
and economic issues associated with mergers and acquisitions
2. Developing a framework for valuing acquisition candidates
3. Evaluating both quantitative and qualitative factors affecting
merger agreements
The case could benefit from being assigned together with the
technical note “Methods of Valuation for Mergers and
Acquisitions” (UVA-F-1274).
Executive Summary
Oracle one of the world’s biggest and most legitimate vendors
of database management system and other related programming
is having to deal with an acquisition decision. Oracle is
thinking to acquire Sun Microsystems, which is mainly in the
industry of making hardware equipment, storage and offering
different services at enterprise level. Per the case study, the
combination of these two companies could make the Wal-Mart
of the enterprise programming industry. In addition to this, the
intention of this report is to evaluate whether Sun Microsystems
would be a good fit for Oracle and what price should be offered
for it. For Sun Microsystems, we used both valuations which are

the Base-Case (Stand Alone) and the expected synergies after
acquisition. We found a way to utilize three diverse ways to
deal with the value of Sun Microsystem. First approach was to
include the market capitalization and the debt of Sun
Microsystem to decide an enterprise value of about $6.20
billion. Second, utilizing a multiple analysis based on
comparable companies to determine the enterprise value which
is about $3.87 billion. The third is utilizing the discounted cash
flow method, we decided that Sun Microsystem’s enterprise
value to be about $4.53 billion as a stand-alone company that is
about $8.95 billion. The uniqueness between the values from the
different methods that were being used was because of the
various assumptions.
Table of Contents
Executive Summary3
Introduction5
1.Is Sun Microsystems a good strategic fit for Oracle? Should
Oracle acquire Sun Microsystems?5
2. How much is Sun worth? What approaches would you use to
place a value on Sun Microsystems? (Hint: Stand-Alone Value,
Acquisition Price and Value with Synergies)7
The Stand Alone and Value with Synergies methods for
valuation using the WACC was calculated as follows:8
Steps for WACC calculation are seen in the excel sheet:9
3. Assuming a discounted cash flow valuation:9
a.What rate of return should Oracle require on the
acquisition?10
b.What base-case cash flows do you forecast?10
c.What is your estimate of terminal value?11
d.What is the enterprise value of Sun Microsystems? What is
the equity value?12
4.Conduct a compare companies or multiples analysis to value
Sun. What economic fundamentals are reflected in the
multiples?12

Multiples of Comparable Companies13
Multiples Analysis15
Economic Fundamentals16
5. Identify the synergies and conduct a sensitivity analysis to
estimate the effect of synergies on enterprise value.16
The below table shows the sensitivity analysis for the two
approaches:20
Stand-Alone Sensitivity Analysis:20
Synergy Value Sensitivity Analysis:21
Summary of Results:21
6. If a competing bidder appears, how high a price should
Oracle be willing to offer?22
Conclusion23
Introduction
The computer industry is an extremely competitive and the
organizations are always searching for new way to evolve to be
a step ahead of the competition at all times. In 2009, Oracle was
planning to acquire Sun Microsystems. This acquisition would
allow Oracle to further diversify their brand, customers and
acquire various new platforms that would be added to their
portfolio such as MySQL, Solaris and Java. Oracle originally
placed an offer of $9.50 per share price which is considerably
higher than Sun Microsystem’s price that is $6.69. In addition
to this, Oracle levered the company’s value with the acquisition
of Sun Microsystems through complementing their system with
hardware manufacturing. This will cut the production costs and
make the company more efficient throughout all the value chain.
The acquisition will pool Oracle’s leading position in the
software area with Sun Microsystem’s proficiency in hardware
and networking. Moreover, Oracle aimed to capitalize on Sun
Microsystem’s decline by getting particular assets or the whole
company at the deflated price. The main issue that Oracle
needed to confront was to make an accurate valuation model to
think of a reasonable price for Sun Microsystems share price.
Additionally, Oracle had to ensure that acquiring Sun

Microsystem would convey benefits and productivity to its
operation.1. Is Sun Microsystems a good strategic fit for
Oracle? Should Oracle acquire Sun Microsystems?
The financial position of oracle in 2009 was much healthier
than that of Sun Microsystems, as in that year Sun was steadily
losing its market share in the hardware business market,
therefore to increase their revenues they tried to leverage
software systems by making the Java Solaris, and acquiring
MySQL. Unfortunately, this did not sustain Sun performance for
a long term especially with the 2007 crisis that affected their
financial performance negatively. As a result they found that
the most suitable action they could undertake is under an
acquisition position. This acquisition will benefit Oracle in
many aspects and will aid Oracle in becoming the enterprise
software industry's Wal-Mart.
Although both businesses are considered of similar industry, yet
they sell different product as Oracle primarily manufacture
business software while Sun professionalize in hardware and
networking. Consequently, Oracle could add Sun Microsystems
to its firm as a vertical integration acquisition and benefit from
the diversification of products that would occur when adding
the strength of Sun's to Oracle's thus creating a preferred
business offering. There were two main technology system
software used by Oracle in 1997 that are Java programming
language and Solaris (an open-source platform), and these two
were owned by Sun Microsystem. Oracle and MySQL database
management systems both targeted different customers therefore
they were not having a direct competition, thus the addition of
MySQL will add to Oracle's portfolio and may well be able to
attract and sell their software to high-end clients. Moreover,
Oracle could add Sun Microsystems solid position in the
software industry to its Java MySQL, and Solaris systems
toward its portfolio.
The beginning of the technology industry started with three
main sectors software, hardware and services storage and

peripherals, but with the industry developing in the new
millennium, there began uncertain lines of segments.
Considering Apple's store, where customers could purchase
their needed software, hardware and peripherals from just one
store have made other technological businesses to reconsider
their strategies in business development.
Sun Microsystem is considered a good fit for Oracle for several
reasons, primary is to achieve their vision of becoming the
Apple in the technological sector for businesses, by providing
both hardware and software components, as stated by Oracle's
CEO Larry Ellison. Moreover, Ellison could achieve the vision
by this acquisition and will also allow Oracle to distribute high-
quality products from the combination of hardware and software
components and therefore reducing customer set-up procedure.
Lastly, the addition of Sun Microsystem will allow Oracle to
expand. The acquisition perfectly fits Oracle's strategy that
justifies improving through acquisition and effective integration
with other companies. Moreover, Oracle has spent more than 30
billion on acquisitions since 2005, thus Oracle is familiar with
similar situations as this allows them to study the intended
company and perceive possible synergies. Therefore, due to all
the listed benefits Sun Microsystem is considered an immense
proposal. 2. How much is Sun worth? What approaches would
you use to place a value on Sun Microsystems? (Hint: Stand-
Alone Value, Acquisition Price and Value with Synergies)
Firstly, to know how much the Sun Microsystem is and how to
value it, we must find the Stand Alone Value of the company.
The Stand Alone value represents the present value of Sun
Microsystem individually before factoring the synergy that
would be created when Oracle acquires Sun. It is the excess
amount of money that the shareholders of Sun Microsystem
receive. It is a mean to value the firm before any merger or
acquisition occur, and it useful to see whether or not the target
company is undervalued or overvalued by comparing it with
current share prices.

Secondly, the value of Sun Microsystem with synergies, which
after being acquired by Oracle, must be found. This is done to
see whether or not the acquisition was a proper strategic
decision or not; keeping in mind that the value of synergies was
considered to be the added amount of money that has been
received by Oracle’s shareholders. If the acquisition proves to
be a fit strategic decision then the value of the company
included within this deal will grow significantly; this is known
as the synergy effect. The cost saving and the extra gain in
revenue and efficiency that is achieved when two companies
merge is represented through Synergies, as show in the attached
excel sheet in Q.3.2, Q.3.3, Q.5.2, and Q.5.3 and as explained in
Question 5. Another method of valuating the Sun Microsystem
is through the comparative company analysis (CCA), aka.
Trading comps. That is done through the thorough assessment of
rival and peer businesses of similar size and industry.
Finally, the acquisition price, which is the price that is paid to
the target when it is first acquired, is also used as a separate
method of valuation. The value of the acquisition price ranges
between the values of the stand-alone and the synergies.
To be able to find the values of both, the Stand Alone and the
synergies, we have decided the best way to do so is by
calculating the discounted cash flow (DCF) by using the
multiples and the perpetuity growth methods and finding the
average of both.
However, there are a few challenges that we potentially could
face using both of these methods and they are as following:
The DCF using the multiples method does not consider long-
term growth or the econometrics of business. It is also very
difficult to identify comparable companies.
The DCF using the perpetuity growth method appears inaccurate
as the company assumes a certain growth rate will remain the
same which is impossible.The Stand Alone and Value with
Synergies methods for valuation using the WACC was
calculated as follows:
The weighted average cost of capital (WACC) is the average of

the cost of individual sources of capital. The capital is
comprised of equity that has been invested, or simply debt that
lenders decided to invest in; with each source of equity being
proportionally weighted. WACC can be defined as the minimum
rate of return. Companies must generate returns greater than
their WACC to be above the break-even point. In case a
company goes below, they would enter a deficit.
In order for shareholders and lenders to be able to estimate the
returns that their investments might yield, the WACC must be
calculated.Steps for WACC calculation are seen in the excel
sheet:
The formula: WACC = Wd x Rd x (1-T) + We x Re
Wd= weight of debt
Rd= cost of debt
We= weight of equity
Re= cost of equity
T= tax rate
To calculate the WACC, the weight of debt in the capital
structure must be calculated using: Debt/(Debt + Market
Capitalization)
(The numbers can be found in exhibit 9.
Then, a calculation of the weight of equity must be done by: 1-
Wd or 1-%Debt
Furthermore, the corporate bond yield from Exhibit 10 is used
for the BB+ ratings since in Exhibit 9 it was shown that the
bond rating for Sun Microsystem is Ba1 (Moody’s), which is
equivalent to BB+ (S&P) .
Moreover, the cost of equity is calculated by using the Capital
Asset Pricing Model: Rf + Beta x (Rm).
All using the following data: a market risk premium (MRP) of
6% (assumed) and the 10-year Treasury Yield as the risk-free
rate (from Exhibit 10) of 2.82% and a Beta of 1.73 (the levered
beta for Sun Microsystem found in Exhibit 9).
Finally, determining the WACC using the assumed tax rate of
35%, providing us with a WACC of 12.05%.3. Assuming a
discounted cash flow valuation:

The Discounted Cash Flow (DCF) Method is considered to the
be the superior valuation techniques to use in case of mergers
and acquisitions compared to the comparable company’s
analysis (CCA) since it is considered to be forward looking and
will consider time value of money. DCF in addition focuses on
cash flows instead of profits, and reflects on other non-cash
charges such as depreciation and amortization and also
investment inflows and outflows.
a.What rate of return should Oracle require on the acquisition?
When there is a possibility of acquisition, the acquirer may plan
to increase the level of debt or decrease it after the merger
because at that moment of time the objectives of the target’s
finances is not ideal. The WACC reflects the company’s
business risk of the target. An intermediary for this can be
acquired from the unlevered beta of the target association’s
value or a normal unlevered beat for firm with comparable
business risk. The targets premerger unlevered beat should then
be re-levered to reflect what the acquirer expected to have as a
post-merger capital structure. To un-lever a company’s expected
beat, one should use the predominant tax rate and the debt to
equity ratio (D/E) of the company which relates to the beta
estimate. The equation is below;
ßu =ßL/[1+(1– T)D/E
Then, using the unlevered beta to estimate or normalize the
unlevered beta estimate if its utilizes numerous companies to
appraise the unlevered beta and the to re-lever the beta to the
new proposed debt to equity ratio. Using the below formula:
ß'L =ßu[1+(1– T)D/E
The rate of return that Oracle should require on the acquisition
is equal to the Sun Microsystem’s WACC which is equal to
12.05%. b.What base-case cash flows do you forecast?
The cash flow projections for the target company could
plausibly incorporate co-operative synergies or any cost savings
picked from the consolidation of the operations of the target

company into those of the acquirer. If the basis of the cash
flows does exclude any economic advantages an acquirer may
convey to a target, they are then introduced as a stand-alone
cash flows.
We then forecasted Sun Microsystem’s free cash flows for 5
years from year 2010 till year 2014. As what is shown in the
excel sheet Q3.1, the free cash flows are estimated which is
then increased from year 2010 till 2011, it then declines from
the year 2011 to year 2012 and then increased back again in
2012 till 2014. In Exhibit 14 the valuation of Sun Microsystems
was calculated using cash flows estimates. Sun Microsystems
operating income is calculated by EBIT using a tax rate of 35%
and that then indicates the NOPAT. Then the next step is that
we calculated the net working capital by adding the net
receivables and the inventory and other current assets then we
subtracted account payable and other current liabilities which is
taken from Exhibit 11.
The Net Working Capital (NWC) has an average of sales of
10.12% of net revenue which is found from Exhibit 14. In
addition, the PPE from Exhibit 14 was then used to calculate
Net PPE. Then this change in net working capital was calculated
by subtracting the Net PPE of 2009 from the Net PPE of 2010.
After finding the change in Net Working Capital, the Free Cash
Flows were then projected from years 2008 to 2014. To
calculate the Free Cash Flows (FCF), the change in Net
Working Capital and the change in capital expenditure was then
subtracted from the NOPAT. In Q3.3 the approach taken was the
multiples of comparable companies to get the terminal value
which is 7,480.
c.What is your estimate of terminal value?
To calculate the terminal value of the company, one must then
determine the perpetuity growth model and then the multiples of
comparable companies. In Q3.2, the terminal value of 4,815 was
calculated by dividing the perpetuity growth (444.35) by the
WACC of 12.05% minus the growth rate of 2.82%.d.What is the

enterprise value of Sun Microsystems? What is the equity
value?
Another method for valuation is the enterprise value for the
acquirer to maintain at the levels of consideration as it will
affect the bid price that a company will be willing to pay for the
target firm. When deciding on the bid price, the buyer (Oracle)
will perform an analysis of the future cash flows of the target
(Sun Microsystems) as a stand-alone business. The effects of
which will be if they have a higher enterprise value for the
target then they would raise the bid price and will still
undertake a positive net present value for investors. This stand-
alone value will give a benchmark for businesses and
shareholders to use when the decision making process occurs
for the organization takeover.
The enterprise value in the DCF with perpetuity growth was
calculated by adding the Net Present Value (NPV) of Free Cash
Flow (FCF) and the net present value of the terminal value. In
addition, to find the price per share of the equity value is was
calculated as (enterprise value – debt + cash) to then be divided
by the number of shares which are 739 which are found in
Exhibit 9. The result of which will be a price per share of $7.40.
Then the enterprise value which is found in the DCF with the
multiples was then calculated by adding the Net Present Value
(NPV) of Free Cash Flows (FCF) and the present value of the
terminal value. In addition, to find the price per share the equity
was calculated from (the enterprise value – debt + cash) to for it
then it to be divided by the number of shares which are 739
from Exhibit 9. The result will then be $9.44 price per
share.4.Conduct a compare companies or multiples analysis to
value Sun. What economic fundamentals are reflected in the
multiples?
There must be a consistency between the target company’s
earnings stream and the multiples used in the valuation process,
in order to conclude the most befitting price using those
evaluation multiples. In depiction, the company’s price to

earnings multiple could be used (which is calculated by dividing
the company’s price per share by the company’s earnings). This
approach takes into account estimating the company’s equity
and comparing it to the company’s income only. As mentioned
earlier, the company in this case is evaluated on its free cash
flow basis for its valuation method. Therefore, rating a firm
based on its revenue might be misguiding as it may demonstrate
presumptions about the firm’s capital structure. Hence, we have
used several different multiples which assimilate the company’s
capital structure (which is mirrored in the firm’s enterprise
value), distinctively regarding the firm’s debt in order to
evaluate the company in the same manner that an acquirer
would. The P/E multiple does not amalgamate the firm’s cash
on hand, sales multiples, EBITDA multiples, or EBIT multiples.
Multiples of Comparable Companies
This approach of valuation is grounded on the perception that
firm’s that have suchlike assets, trade their goods and services
at homogenous rates. Presuming that a proportion which
assimilates specific values (for example earnings) of the
company’s particular figures would be indistinguishable athwart
companies in the same industry. Accordingly, the company’s
valuation can be accomplished by effectuating inscribing the
other firms (in the form of an index) which are comparable in
size as well as products (goods or services) that operate in the
same industry.
Sun Microsystems is thought-out to be a preeminent hardware
firm, with a realm of business systems and utilities, stowage
and software platforms (such as Java, Solaris, and MySQL). In
order to carry out a compare companies analysis, a benchmark
of the most comparable companies to Sun Microsystems must be
done (companies that offer the same goods and services). A
depiction of the different firms that offer tangible goods
(hardware firms) as well as firms that offer intangible goods
(software firms) is portrayed in Exhibit 4. As Sun Microsystems
is a hardware firm, we decided that our comparable companies
analysis would take Advanced, Micro Devices, Apple, Dell,

EMC, Hewlett-Packard (HP), Intel, International Business
Machines (IBM), and NetApp into consideration for our
analysis. Nonetheless, the aforementioned companies’ goods
and services ranges are utterly dissipated. In order to have a
more veracious comparable companies analysis, we will base
our analysis on the following firms: Apple, Dell, Hewlett-
Packard (HP), Intel, and International Business Machines
(IBM). We will not be co-opt firms that offer product lines and
progression plans that are dissimilar than that of Sun
Microsystems (such as Advanced Micro Devices, EMC, and
NetApp).
Pertaining to Exhibit 9, the comparable companies’ levered
betas are specified, which reflects a median of 1.12 for the
entire industry, and a levered beta of 1.73 for Sun
Microsystems. Additionally, we figured out the unlevered beta
by computing the debt to equity (D/E) ratio. We used a 35% tax
rate (as presumed in question 2), exhibiting a 9.35% median and
a 1.58 unlevered beta for the entire industry. Whilst Sun
Microsystems had a debt to equity (D/E) ratio of 25.44% and a
levered beta of 2.13, hence, it is considered to be rather higher
than the market. This indicates that the business is more
perilous compared to the industry in which it operates.
Therefore, this denotes the ideal ratio of debt to equity (D/E)
that Sun Microsystems must achieve. We also computed the cost
of equity by using the capital asset pricing model (CAPM). We
substituted a risk-free rate of 2.82% and a market premium rate
of 6% (as assumed in question 2). We further computed the debt
to capital ratio as well as equity to capital ratio in order to
attain the comparable companies’ weights of equity and debt
both. We achieved this by using the information provided in
Exhibit 9. We reasserted the optimum capital structure that
needs to be attained by Sun Microsystems in order to be
correspondent to the median of the industry. Each company’s
bond rating is mentioned in Exhibit 9, therefore, we took the
cost of debt from the corporate bond yields, which is provided
in Exhibit 10 (in conformance with the bond ratings for each

company).
Lastly, we calculated the WACC and reached a value of 9.50%
as the industry’s median and a value of 12.05% for Sun
Microsystems. Pertaining back to what the WACC signifies (as
stated in question 2), we can note that Sun Microsystems has a
cost of capital that is much higher than that of the industry.
This is reflected in the elevated rate of return that is expected to
be receive on capitalizing in Sun Microsystems (which denotes
that firm is much distressful compared to the other competing
companies that operate in the industry).
Finally, we computed the multiples using EBIT, EBITDA as
well as Sales (provided in Exhibit 9), which resulting with these
outcomes.Multiples Analysis
EBIT Multiple
EBITDA Multiple
Sales Multiple
Sun Microsystems
-1.41
-13.15
1.72
Median
9.40
6.28
1.39
We integrated the multiples’ average values, as they are
essential in computing Sun Microsystems’ implied enterprise
value (EV).
For us to do the comparable companies analysis (CCA), we
needed to figure out the average price per share. We determined
that the foremost thing to do was use the average EBIT,
EBITDA and Sales average values for the former two years
(2007-2008) in order to form our information on documented
historical data. Since the accessible data was only for the

former two years, we decided to include the data for both years.
In the excel sheet Q.4, we included the detailed computations of
our calculations in order to find the average price per share,
after which we reached an outcome of $13.06 as the average
share price. Economic Fundamentals
To compute the terminal value, we took the U.S. treasury’s
earnings (for 10 years) and used it as the risk-free rate (which
was substituted as the growth rate). Additionally, to compute
the average price per share needed foe the comparable
companies’ analysis (CCA), we computed the implied enterprise
value (EV) using the averages of the multiples mentioned
earlier. Knowing that this comparable companies’ analysis
(CCA) would be used to set a benchmark for Sun Microsystems
to be valued upon, we must keep in mind that this benchmark
might possibly result in an inaccurate computation of the real
worth of the company. This would be due to the main fact that
some companies are in a considerably more fiscally sound and
firm situation compared to our target firm (Sun Microsystems),
such as Apple or Dell.5. Identify the synergies and conduct a
sensitivity analysis to estimate the effect of synergies on
enterprise value.
The potential synergies that Madison mentioned were the
integral charges of $1.1 billion in total where $750 million
which were incurred in 2010 and the rest ($350 million) being
incurred in 2011. The team’s calculations which are estimated
as an initial loss of $45 million in operating income due to them
losing clients or/and delaying the purchases. Lastly, the cost
cutting that would be faced by Sun after their acquisition would
result in a reduction of the numbers of staff in Sun
Microsystems by an approximate of 20-25%. In addition to this
the selling, general and administrative (S, G&A) expenses
would be further reduced by 22-32%. Furthermore, new
products, licensing income, and the “integrated application to-
disk” service would result in a potential annual increase in
operating profit by a total of $900 million. As Madison had
previously assumed that these synergies would be slowly

increasing over a period of time, which is 3-years (from 2011
till 2013), this reaching its full capacity of $900 million in
2013. In Exhibit Q5.1 in the excel sheet there will found all the
effects of the synergy sources.
Valuing Sun Microsystems with Synergies are done in Excel
Sheet Exhibit Q5.1, Q5.2 and Q5.3. The levered beta was then
taken directly from Q2 in the Excel Sheet, however, the
unlevered beta was calculated using the following formula
(levered beta divided by (1+!1-T) multiplies by D/E). Where is
the weight of debt and E is the weight of Equity. In addition to
this, weight of debt, weight of equity, risk free rate, market risk
premium, cost of debt and equity, tax rate and lastly WACC
(weighted average cost of capital) were all taken directly from
Q2 in the Excel sheet. Growth rate is equal to risk free rate; this
is due to the fact that there a relationship between the two.
Therefore, any chnages that happen in the risk free rate is then
correlated to any changes in the sustainable growth rate as well,
the same issue goes for the stand alone DCF done for the above
question 3. For the EBIT Exit Multiple, earning before interest
and tax, on the other hand are taken from Exhibit Q4 in the
Excel Sheet from the EBIT Median Multiple. Book Value (BV)
of debt and Market Value (MV) of Equity are taken directly
from Exhibit 9 in the attached Excel Sheet. The total is
calculated by adding BV of debt and MV of equity. Finally, the
percentage of debt is calculated by dividing BV of debt over the
total. The second step to do is to the discounted free cash flow
analysis and to determine the free cash flows using the
synergies found. The steps below elaborate more:
· Sales and EBIT without synergies are going to be taken
directly from Exhibit 14. EBIT without synergies is equal to
operating income. As for the perpetuity growth for the sales is
calculated by multiplying the last year (2014) with (1+gtwoth
rate).
· The initial loss that is noticed in operating income is taken
directly from the page 679 in the book which is predicted to be
$45 million in year 2010. The main reason for this loss is due to

the loss of customer and/or any deferred purchases.
· As for any noticeable integration charges (any expenses) these
are taken from the same page as above, and the total is $1.1
billion with $750 million which is incurred in year 2010 and the
rest will be incurred in 2011 ($1.1 billion - $750 million) which
is equal to $350 million.
· There is a noticeable boost in operating profit by $900 million
per year where Madison assumed that synergies would slowly
increase over the three years starting from the year 2011.
Therefore, in 2011 it was calculated by dividing $900 million
by 3 years which will give us a total of $300 million. In the
2012, an increase was calculated by ($900 million minus $300
million) which will give us a total of $600 million. In 2013 and
2014, it is taken directly from the case in page 679 so the
number is $900 million.
· The following steps were taken to calculate EBIT with
Synergies (EBIT without synergies minus loss in operating
income minus integration charges plus increase in net operating
profit). These steps were taken for all years (2010 till 2014).
· Taxes were calculated by multiplying the EBIT with synergies
with the tax rate. However, for the year 2010, since it carries a
negative EBIT the resulting value would be the negative value
of taxes, which is why we put zero as negative taxes are
unrealistic (incorrect).
· NOPAT is then calculated by subtracting EBIT with synergies
and taxes. The perpetuity growth is then calculated by
multiplying the last year NOPAT with (1+growth rate).
· Then both Net Working Capital (NWC) and Net PPE
perpetuity growth were calculated by multiplying the last year
which was 2014 with (1+growth rate). Net Working Capital
(NWC) and Property, Plant and Equipment (PPE) were taken
directly from Q3.1.
· Change in NWC is the new year minus the prior year which is
done only from year 2010 till 2014 which is the same for the
perpetuity growth.
· The changes in capital expenditure (CAPEX) is calculated by

subtracting the new year PPE from the prior year PPE (for
example, 2010 PPE - 2009 PPE). This is because PPE is
considered as a capital expenditure (CAPEX). The same thing is
also done when calculating the perpetuity growth.
· Free Cash Flows (FCF) for the year 2010 till 2014 and for the
perpetuity growth are calculated as follows (NOPAT minus
Change in NWC minus Change in CAPEX). These free cash
flows as shown in the excel spreadsheet they are increasing
throughout the years.
· The DCF (Discounted Cash Flow) analysis was done by using
both the perpetuity growth and the multiples as what are shown
in the Excel Sheet (Q5.2 and 5.3). The NPV (Net Present Value)
for both methods were calculated by using the NPV function
which includes both the WACC and the Free Cash Flows from
2010 till 2014.
· There are two methods which can be used to calculate terminal
value: it is either perpetuity growth method or using comparable
company multiples. Using the DCF analysis with perpetuity
growth it indicates that Sun Microsystems will most likely grow
forever. The growth rate that was used is equal to the risk-free
rate which is 2.82%. As what was found for the terminal value
in the DCF with perpetuity growth that was calculated as the
last years FCF (2014) divided by (WACC minus growth rate). In
addition, the DCF with multiple is calculated as EBIT for the
year 2014 multiplied by the median EBIT multiple (9.40).
· When calculating the Net Present Value (NPV) of terminal
value (TV), we divided the terminal value by 1+WACC to the
power of 5 which indicates the 5 years which are between 2010
and 2014, this step was taken for both the DCF with perpetuity
and multiple methods.
· Enterprise value is calculated by NPV of FCF + NPV of TV.
Debt and cash were taken directly from Exhibit 11. Equity is
calculated as enterprise value minus debt plus cash.
· The total number of shares were taken directly from Exhibit 9
and price per share is found by equity divided by the number of
shares outstanding.

· The two methods will actually result in different prices per
share. The DCF with perpetuity growth will result in a price per
share of $12.79, whereas the DCF with the multiples price per
share will give a result of $16.32.
· If Oracle will acquire Sun Microsystems, certain synergies
would appear;
· Oracle will be able to utilize Sun’s Java in their own portfolio
to create many of their applications.
· By adding MySQL to Oracle company this will help them in
adding smaller cliental to their customer base.
· This acquisition will help Oracle to expand its products lines
and risks
· There will be a combination of both companies Research and
Development (R&D) and also their sales teams.The below table
shows the sensitivity analysis for the two approaches:
Stand-Alone Sensitivity Analysis:
Synergy Value Sensitivity Analysis:
The sensitivity analysis for the synergy values using both the
two methods perpetuity growth method (PGM) and the exit
multiple method (EMM) show a higher enterprise value then the
stand alone valuation preformed.
Summary of Results:
Enterprise Value
Equity Value
Price per share
Stand-Alone (Base-Case) using the Perpetuity method
3,653 million
5,465 million
$7.40
Stand-Alone (Base- Case) using the Multiples method
5,161 million

6,973 million
$9.44
Synergy using the Perpetuity method
7,632 million
9,444 million
$12.79
Synergy using the Multiple method
10,238 million
12,050 million
$16.32
Comparable Company method
$13.06
Oracle’s offer price
$9.50
Sun Microsystem (Current Share Price)
$6.69
Based on the above sensitivity analysis, what can be seen is that
in the Stand-Alone (Base Case) using the perpetuity method
which gave us an enterprise value of 3,653 million and an
equity value of 5,465 million which resulted in a price of $7.40
per share which is close to the price per share of Sun
Microsystems. Also, what can be noticed when we used the
multiple method for the Stand-Alone (Base Case) we got $9.44
price per share which has a difference of only $2.75 ($9.44-
$6.69). Therefore, the synergies valuation method was used to
receive the accurate results of share price. The synergy using
perpetuity method which has an enterprise value of 7,632
million and an equity value of 9,444 million resulted in a
$12.79 price per share. In addition, when using the multiple

method for the synergy the price per share of $16.32 shows a
major difference between Sun Microsystems and Oracle’s offer
price.6. If a competing bidder appears, how high a price should
Oracle be willing to offer?
Sun Microsystems Implied Offer Price
Perpetuity Growth Method
Exit Multiple
Sun Microsystems Share Price
DCF using the Standalone Value
$7.40
$9.44
$8.42
DCF using the Synergy Value
$12.79
$16.32
$14.55
Average CCA
$13.06
Current Offer Price by Oracle
$9.50
Oracle is presently proposing the shares for a value of $9.50 per
share for Sun Microsystems. We have used the three different
approaches (as portrayed in the table above) in order to
ascertain the highest price that Oracle is inclined to pay. In the
DCF using the standalone value with perpetuity growth method
offered us a value of $7.40 per share. However, when we used
the exit multiple method, we got a value of $9.44 per share.
Conversely, in the DCF using the synergy value, the perpetuity
growth method offered us a value of $12.79 per share while the
exit multiple method offered us a value of $16.32 per share. The

two values are higher than the price offered by Oracle (which is
equivalent to $9.50 per share) in comparison to the DCF with
the standalone value.
Moreover, the values of each method, the perpetuity method and
the multiples method, were not accounted for autonomously
because of the challenges faced (as stated earlier in question 2).
Thus, in order to avert misrepresenting the real worth of Sun
Microsystems, we decided to take the average of the two
methods. Accordingly, to find out what the highest price Oracle
might propose to Sun Microsystems, values ranging from $8.42
to $14.55 was given (marking the lowest and highest prices that
Oracle may offer to Sun Microsystems). As portrayed, it is
evident that share price derived through the comparable
companies’ analysis (CCA) and the price offered by Oracle are
both contained within the suggested range (prices are $13.06
and $9.50 respectively).
All in all, we decided that the optimum price that should be
proposed by Oracle is $11.38. This value was computed by
finding the average of all the prices represented above along
with the amount that is offered by Oracle
((8.42+14.55+13.06+9.50)/4= $11.38).
7- What approaches and methods are used for valuation of
Mergers and Acquisitions; their pros and cons, role of synergies
in M&A valuation.
8- How the IT sector in general and software industry in
particular has grown in last ten years, who are the major
players, what are the key trends and future outlook. Please
highlight a recent Merger and Acquisition transaction (other
than Sun Microsystem) in the IT sector.
Conclusion
To conclude the acquisition of Sun Microsystems by Oracle will
add additional platforms to their portfolio such as MySQL,

Solaris and Java. This acquisition can create also a case of
cannibalization ( when a new business affects the sales and
profits of the existing one) on the software’s which are being
provided by Oracle. The combination of these two companies
would give Oracle the chance to expand its market shares since
they will also be dealing with lower-end consumers. In addition
to this, Sun Microsystems calculated WACC is 12.05% which
means that investing in Sun would be providing a very good
appeal however with a high level of risk. Moreover, the
discounted cash flow method and the multiple valuation method
was used to know which price should Oracle give to Sun
Microsystems’s shares. The DCF method estimates the stand-
alone Sun Microsystem’s, using the WACC, enterprise value
and equity value. As shown on the Excel Spreadsheet, the
enterprise value accounted for $3,653 million and the equity
value of $5,465 million which gave us a share price of $7.40.
this share price is close to the original share price of $6.69 and
that occurred because of the way enterprise value was
calculated which was through terminal value that leads to a
conclusion that the values are coming from the future. Per the
DCF (Discounted Cash Flow) method, the investors are
investing in the future and not in the present of the company.
The final price per share that was concluded is a range $8.42 to
$14.55.
References:
http://www.referenceforbusiness.com/history2/64/Sun-
Microsystems-Inc.html#ixzz521NZNOdg

https://www.investopedia.com/terms/m/multiplesapproach.asp
https://www.investopedia.com/terms/c/comparable-company-
analysis-cca.asp
http://www.arborinvestmentplanner.com/enterprise-value-ev-
calculating-enterprise-value-ratios/
1
[Type text][Type text][Type text]
2
BNFN 4304 – Financial Policy
Mr. Masood Aijazi
Case 48: Sun Microsystems
Spring Semester 2017 – 2018
Authored By
Maryam Barifah1420023
Nour Abdulaziz1420149
Yara El-Feki1410435
Balquis Mekhlafi
1410231
Shrouk Al-Jaaidi 1420072

Submission Date
10/05/2018
Guidance Sheet
Synopsis
This case calls for students to reevaluate the price Oracle
should pay to acquire its long-term business partner, Sun
Microsystems. The emergence of new suitors (e.g., IBM) forces
Oracle’s corporate development team to go back to the drawing
board and reevaluate all the assumptions they have made in
putting together the initial bid of $7.38 million, or $9.50 per
share, on April 17, 2009. Students are invited to value Sun’s
stock and take a position on whether there is any room left to
sweeten the offer if a bidding war unfolds. The case outlines the
Oracle strategy and how long-term partnering with Sun
contributed to it to date. It also allows for an in-depth
discussion of the changing competitive landscape of the
technology industry.
The case is an exercise in valuing a potential acquisition target.
It presents an opportunity for students to develop appreciation
for valuing a company using both discounted cash flow and
multiples in their analysis. Particular attention should be paid to
the inclusion of synergies and their relevance to the valuation.

The bidding dimensions of the case are highlighted by the
presence of other potential acquirers.
Objectives
The primary objectives of this exercise are to introduce or
reinforce valuation tools in the context of mergers and
acquisitions:
1. Analyzing a variety of strategic, organizational, financial,
and economic issues associated with mergers and acquisitions
2. Developing a framework for valuing acquisition candidates
3. Evaluating both quantitative and qualitative factors affecting
merger agreements
The case could benefit from being assigned together with the
technical note “Methods of Valuation for Mergers and
Acquisitions” (UVA-F-1274).
Executive Summary
Oracle one of the world’s biggest and most legitimate vendors
of database management system and other related programming
is having to deal with an acquisition decision. Oracle is
thinking to acquire Sun Microsystems, which is mainly in the
industry of making hardware equipment, storage and offering
different services at enterprise level. Per the case study, the

combination of these two companies could make the Wal-Mart
of the enterprise programming industry. In addition to this, the
intention of this report is to evaluate whether Sun Microsystems
would be a good fit for Oracle and what price should be offered
for it. For Sun Microsystems, we used both valuations which are
the Base-Case (Stand Alone) and the expected synergies after
acquisition. We found a way to utilize three diverse ways to
deal with the value of Sun Microsystem. First approach was to
include the market capitalization and the debt of Sun
Microsystem to decide an enterprise value of about $6.20
billion. Second, utilizing a multiple analysis based on
comparable companies to determine the enterprise value which
is about $3.87 billion. The third is utilizing the discounted cash
flow method, we decided that Sun Microsystem’s enterprise
value to be about $4.53 billion as a stand-alone company that is
about $8.95 billion. The uniqueness between the values from the
different methods that were being used was because of the
various assumptions.
Table of Contents
Executive Summary3
Introduction5
1.Is Sun Microsystems a good strategic fit for Oracle? Should
Oracle acquire Sun Microsystems?5
2. How much is Sun worth? What approaches would you use to
place a value on Sun Microsystems? (Hint: Stand-Alone Value,
Acquisition Price and Value with Synergies)7
The Stand Alone and Value with Synergies methods for
valuation using the WACC was calculated as follows:8
Steps for WACC calculation are seen in the excel sheet:9
3. Assuming a discounted cash flow valuation:9
a.What rate of return should Oracle require on the
acquisition?10
b.What base-case cash flows do you forecast?10
c.What is your estimate of terminal value?11

d.What is the enterprise value of Sun Microsystems? What is
the equity value?12
4.Conduct a compare companies or multiples analysis to value
Sun. What economic fundamentals are reflected in the
multiples?12
Multiples of Comparable Companies13
Multiples Analysis15
Economic Fundamentals16
5. Identify the synergies and conduct a sensitivity analysis to
estimate the effect of synergies on enterprise value.16
The below table shows the sensitivity analysis for the two
approaches:20
Stand-Alone Sensitivity Analysis:20
Synergy Value Sensitivity Analysis:21
Summary of Results:21
6. If a competing bidder appears, how high a price should
Oracle be willing to offer?22
Conclusion23
Introduction
The computer industry is an extremely competitive and the
organizations are always searching for new way to evolve to be
a step ahead of the competition at all times. In 2009, Oracle was
planning to acquire Sun Microsystems. This acquisition would
allow Oracle to further diversify their brand, customers and
acquire various new platforms that would be added to their
portfolio such as MySQL, Solaris and Java. Oracle originally
placed an offer of $9.50 per share price which is considerably
higher than Sun Microsystem’s price that is $6.69. In addition
to this, Oracle levered the company’s value with the acquisition
of Sun Microsystems through complementing their system with
hardware manufacturing. This will cut the production costs and
make the company more efficient throughout all the value chain.
The acquisition will pool Oracle’s leading position in the
software area with Sun Microsystem’s proficiency in hardware
and networking. Moreover, Oracle aimed to capitalize on Sun

Microsystem’s decline by getting particular assets or the whole
company at the deflated price. The main issue that Oracle
needed to confront was to make an accurate valuation model to
think of a reasonable price for Sun Microsystems share price.
Additionally, Oracle had to ensure that acquiring Sun
Microsystem would convey benefits and productivity to its
operation.1. Is Sun Microsystems a good strategic fit for
Oracle? Should Oracle acquire Sun Microsystems?
The financial position of oracle in 2009 was much healthier
than that of Sun Microsystems, as in that year Sun was steadily
losing its market share in the hardware business market,
therefore to increase their revenues they tried to leverage
software systems by making the Java Solaris, and acquiring
MySQL. Unfortunately, this did not sustain Sun performance for
a long term especially with the 2007 crisis that affected their
financial performance negatively. As a result they found that
the most suitable action they could undertake is under an
acquisition position. This acquisition will benefit Oracle in
many aspects and will aid Oracle in becoming the enterprise
software industry's Wal-Mart.
Although both businesses are considered of similar industry, yet
they sell different product as Oracle primarily manufacture
business software while Sun professionalize in hardware and
networking. Consequently, Oracle could add Sun Microsystems
to its firm as a vertical integration acquisition and benefit from
the diversification of products that would occur when adding
the strength of Sun's to Oracle's thus creating a preferred
business offering. There were two main technology system
software used by Oracle in 1997 that are Java programming
language and Solaris (an open-source platform), and these two
were owned by Sun Microsystem. Oracle and MySQL database
management systems both targeted different customers therefore
they were not having a direct competition, thus the addition of
MySQL will add to Oracle's portfolio and may well be able to
attract and sell their software to high-end clients. Moreover,

Oracle could add Sun Microsystems solid position in the
software industry to its Java MySQL, and Solaris systems
toward its portfolio.
The beginning of the technology industry started with three
main sectors software, hardware and services storage and
peripherals, but with the industry developing in the new
millennium, there began uncertain lines of segments.
Considering Apple's store, where customers could purchase
their needed software, hardware and peripherals from just one
store have made other technological businesses to reconsider
their strategies in business development.
Sun Microsystem is considered a good fit for Oracle for several
reasons, primary is to achieve their vision of becoming the
Apple in the technological sector for businesses, by providing
both hardware and software components, as stated by Oracle's
CEO Larry Ellison. Moreover, Ellison could achieve the vision
by this acquisition and will also allow Oracle to distribute high-
quality products from the combination of hardware and software
components and therefore reducing customer set-up procedure.
Lastly, the addition of Sun Microsystem will allow Oracle to
expand. The acquisition perfectly fits Oracle's strategy that
justifies improving through acquisition and effective integration
with other companies. Moreover, Oracle has spent more than 30
billion on acquisitions since 2005, thus Oracle is familiar with
similar situations as this allows them to study the intended
company and perceive possible synergies. Therefore, due to all
the listed benefits Sun Microsystem is considered an immense
proposal. 2. How much is Sun worth? What approaches would
you use to place a value on Sun Microsystems? (Hint: Stand-
Alone Value, Acquisition Price and Value with Synergies)
Firstly, to know how much the Sun Microsystem is and how to
value it, we must find the Stand Alone Value of the company.
The Stand Alone value represents the present value of Sun
Microsystem individually before factoring the synergy that
would be created when Oracle acquires Sun. It is the excess

amount of money that the shareholders of Sun Microsystem
receive. It is a mean to value the firm before any merger or
acquisition occur, and it useful to see whether or not the target
company is undervalued or overvalued by comparing it with
current share prices.
Secondly, the value of Sun Microsystem with synergies, which
after being acquired by Oracle, must be found. This is done to
see whether or not the acquisition was a proper strategic
decision or not; keeping in mind that the value of synergies was
considered to be the added amount of money that has been
received by Oracle’s shareholders. If the acquisition proves to
be a fit strategic decision then the value of the company
included within this deal will grow significantly; this is known
as the synergy effect. The cost saving and the extra gain in
revenue and efficiency that is achieved when two companies
merge is represented through Synergies, as show in the attached
excel sheet in Q.3.2, Q.3.3, Q.5.2, and Q.5.3 and as explained in
Question 5. Another method of valuating the Sun Microsystem
is through the comparative company analysis (CCA), aka.
Trading comps. That is done through the thorough assessment of
rival and peer businesses of similar size and industry.
Finally, the acquisition price, which is the price that is paid to
the target when it is first acquired, is also used as a separate
method of valuation. The value of the acquisition price ranges
between the values of the stand-alone and the synergies.
To be able to find the values of both, the Stand Alone and the
synergies, we have decided the best way to do so is by
calculating the discounted cash flow (DCF) by using the
multiples and the perpetuity growth methods and finding the
average of both.
However, there are a few challenges that we potentially could
face using both of these methods and they are as following:
The DCF using the multiples method does not consider long-
term growth or the econometrics of business. It is also very
difficult to identify comparable companies.
The DCF using the perpetuity growth method appears inaccurate

as the company assumes a certain growth rate will remain the
same which is impossible.The Stand Alone and Value with
Synergies methods for valuation using the WACC was
calculated as follows:
The weighted average cost of capital (WACC) is the average of
the cost of individual sources of capital. The capital is
comprised of equity that has been invested, or simply debt that
lenders decided to invest in; with each source of equity being
proportionally weighted. WACC can be defined as the minimum
rate of return. Companies must generate returns greater than
their WACC to be above the break-even point. In case a
company goes below, they would enter a deficit.
In order for shareholders and lenders to be able to estimate the
returns that their investments might yield, the WACC must be
calculated.Steps for WACC calculation are seen in the excel
sheet:
The formula: WACC = Wd x Rd x (1-T) + We x Re
Wd= weight of debt
Rd= cost of debt
We= weight of equity
Re= cost of equity
T= tax rate
To calculate the WACC, the weight of debt in the capital
structure must be calculated using: Debt/(Debt + Market
Capitalization)
(The numbers can be found in exhibit 9.
Then, a calculation of the weight of equity must be done by: 1-
Wd or 1-%Debt
Furthermore, the corporate bond yield from Exhibit 10 is used
for the BB+ ratings since in Exhibit 9 it was shown that the
bond rating for Sun Microsystem is Ba1 (Moody’s), which is
equivalent to BB+ (S&P) .
Moreover, the cost of equity is calculated by using the Capital
Asset Pricing Model: Rf + Beta x (Rm).
All using the following data: a market risk premium (MRP) of
6% (assumed) and the 10-year Treasury Yield as the risk-free

rate (from Exhibit 10) of 2.82% and a Beta of 1.73 (the levered
beta for Sun Microsystem found in Exhibit 9).
Finally, determining the WACC using the assumed tax rate of
35%, providing us with a WACC of 12.05%.3. Assuming a
discounted cash flow valuation:
The Discounted Cash Flow (DCF) Method is considered to the
be the superior valuation techniques to use in case of mergers
and acquisitions compared to the comparable company’s
analysis (CCA) since it is considered to be forward looking and
will consider time value of money. DCF in addition focuses on
cash flows instead of profits, and reflects on other non-cash
charges such as depreciation and amortization and also
investment inflows and outflows.
a.What rate of return should Oracle require on the acquisition?
When there is a possibility of acquisition, the acquirer may plan
to increase the level of debt or decrease it after the merger
because at that moment of time the objectives of the target’s
finances is not ideal. The WACC reflects the company’s
business risk of the target. An intermediary for this can be
acquired from the unlevered beta of the target association’s
value or a normal unlevered beat for firm with comparable
business risk. The targets premerger unlevered beat should then
be re-levered to reflect what the acquirer expected to have as a
post-merger capital structure. To un-lever a company’s expected
beat, one should use the predominant tax rate and the debt to
equity ratio (D/E) of the company which relates to the beta
estimate. The equation is below;
ßu =ßL/[1+(1– T)D/E
Then, using the unlevered beta to estimate or normalize the
unlevered beta estimate if its utilizes numerous companies to
appraise the unlevered beta and the to re-lever the beta to the
new proposed debt to equity ratio. Using the below formula:
ß'L =ßu[1+(1– T)D/E
The rate of return that Oracle should require on the acquisition
is equal to the Sun Microsystem’s WACC which is equal to

12.05%. b.What base-case cash flows do you forecast?
The cash flow projections for the target company could
plausibly incorporate co-operative synergies or any cost savings
picked from the consolidation of the operations of the target
company into those of the acquirer. If the basis of the cash
flows does exclude any economic advantages an acquirer may
convey to a target, they are then introduced as a stand-alone
cash flows.
We then forecasted Sun Microsystem’s free cash flows for 5
years from year 2010 till year 2014. As what is shown in the
excel sheet Q3.1, the free cash flows are estimated which is
then increased from year 2010 till 2011, it then declines from
the year 2011 to year 2012 and then increased back again in
2012 till 2014. In Exhibit 14 the valuation of Sun Microsystems
was calculated using cash flows estimates. Sun Microsystems
operating income is calculated by EBIT using a tax rate of 35%
and that then indicates the NOPAT. Then the next step is that
we calculated the net working capital by adding the net
receivables and the inventory and other current assets then we
subtracted account payable and other current liabilities which is
taken from Exhibit 11.
The Net Working Capital (NWC) has an average of sales of
10.12% of net revenue which is found from Exhibit 14. In
addition, the PPE from Exhibit 14 was then used to calculate
Net PPE. Then this change in net working capital was calculated
by subtracting the Net PPE of 2009 from the Net PPE of 2010.
After finding the change in Net Working Capital, the Free Cash
Flows were then projected from years 2008 to 2014. To
calculate the Free Cash Flows (FCF), the change in Net
Working Capital and the change in capital expenditure was then
subtracted from the NOPAT. In Q3.3 the approach taken was the
multiples of comparable companies to get the terminal value
which is 7,480.
c.What is your estimate of terminal value?

To calculate the terminal value of the company, one must then
determine the perpetuity growth model and then the multiples of
comparable companies. In Q3.2, the terminal value of 4,815 was
calculated by dividing the perpetuity growth (444.35) by the
WACC of 12.05% minus the growth rate of 2.82%.d.What is the
enterprise value of Sun Microsystems? What is the equity
value?
Another method for valuation is the enterprise value for the
acquirer to maintain at the levels of consideration as it will
affect the bid price that a company will be willing to pay for the
target firm. When deciding on the bid price, the buyer (Oracle)
will perform an analysis of the future cash flows of the target
(Sun Microsystems) as a stand-alone business. The effects of
which will be if they have a higher enterprise value for the
target then they would raise the bid price and will still
undertake a positive net present value for investors. This stand-
alone value will give a benchmark for businesses and
shareholders to use when the decision making process occurs
for the organization takeover.
The enterprise value in the DCF with perpetuity growth was
calculated by adding the Net Present Value (NPV) of Free Cash
Flow (FCF) and the net present value of the terminal value. In
addition, to find the price per share of the equity value is was
calculated as (enterprise value – debt + cash) to then be divided
by the number of shares which are 739 which are found in
Exhibit 9. The result of which will be a price per share of $7.40.
Then the enterprise value which is found in the DCF with the
multiples was then calculated by adding the Net Present Value
(NPV) of Free Cash Flows (FCF) and the present value of the
terminal value. In addition, to find the price per share the equity
was calculated from (the enterprise value – debt + cash) to for it
then it to be divided by the number of shares which are 739
from Exhibit 9. The result will then be $9.44 price per
share.4.Conduct a compare companies or multiples analysis to
value Sun. What economic fundamentals are reflected in the

multiples?
There must be a consistency between the target company’s
earnings stream and the multiples used in the valuation process,
in order to conclude the most befitting price using those
evaluation multiples. In depiction, the company’s price to
earnings multiple could be used (which is calculated by dividing
the company’s price per share by the company’s earnings). This
approach takes into account estimating the company’s equity
and comparing it to the company’s income only. As mentioned
earlier, the company in this case is evaluated on its free cash
flow basis for its valuation method. Therefore, rating a firm
based on its revenue might be misguiding as it may demonstrate
presumptions about the firm’s capital structure. Hence, we have
used several different multiples which assimilate the company’s
capital structure (which is mirrored in the firm’s enterprise
value), distinctively regarding the firm’s debt in order to
evaluate the company in the same manner that an acquirer
would. The P/E multiple does not amalgamate the firm’s cash
on hand, sales multiples, EBITDA multiples, or EBIT multiples.
Multiples of Comparable Companies
This approach of valuation is grounded on the perception that
firm’s that have suchlike assets, trade their goods and services
at homogenous rates. Presuming that a proportion which
assimilates specific values (for example earnings) of the
company’s particular figures would be indistinguishable athwart
companies in the same industry. Accordingly, the company’s
valuation can be accomplished by effectuating inscribing the
other firms (in the form of an index) which are comparable in
size as well as products (goods or services) that operate in the
same industry.
Sun Microsystems is thought-out to be a preeminent hardware
firm, with a realm of business systems and utilities, stowage
and software platforms (such as Java, Solaris, and MySQL). In
order to carry out a compare companies analysis, a benchmark
of the most comparable companies to Sun Microsystems must be
done (companies that offer the same goods and services). A

depiction of the different firms that offer tangible goods
(hardware firms) as well as firms that offer intangible goods
(software firms) is portrayed in Exhibit 4. As Sun Microsystems
is a hardware firm, we decided that our comparable companies
analysis would take Advanced, Micro Devices, Apple, Dell,
EMC, Hewlett-Packard (HP), Intel, International Business
Machines (IBM), and NetApp into consideration for our
analysis. Nonetheless, the aforementioned companies’ goods
and services ranges are utterly dissipated. In order to have a
more veracious comparable companies analysis, we will base
our analysis on the following firms: Apple, Dell, Hewlett-
Packard (HP), Intel, and International Business Machines
(IBM). We will not be co-opt firms that offer product lines and
progression plans that are dissimilar than that of Sun
Microsystems (such as Advanced Micro Devices, EMC, and
NetApp).
Pertaining to Exhibit 9, the comparable companies’ levered
betas are specified, which reflects a median of 1.12 for the
entire industry, and a levered beta of 1.73 for Sun
Microsystems. Additionally, we figured out the unlevered beta
by computing the debt to equity (D/E) ratio. We used a 35% tax
rate (as presumed in question 2), exhibiting a 9.35% median and
a 1.58 unlevered beta for the entire industry. Whilst Sun
Microsystems had a debt to equity (D/E) ratio of 25.44% and a
levered beta of 2.13, hence, it is considered to be rather higher
than the market. This indicates that the business is more
perilous compared to the industry in which it operates.
Therefore, this denotes the ideal ratio of debt to equity (D/E)
that Sun Microsystems must achieve. We also computed the cost
of equity by using the capital asset pricing model (CAPM). We
substituted a risk-free rate of 2.82% and a market premium rate
of 6% (as assumed in question 2). We further computed the debt
to capital ratio as well as equity to capital ratio in order to
attain the comparable companies’ weights of equity and debt
both. We achieved this by using the information provided in
Exhibit 9. We reasserted the optimum capital structure that

needs to be attained by Sun Microsystems in order to be
correspondent to the median of the industry. Each company’s
bond rating is mentioned in Exhibit 9, therefore, we took the
cost of debt from the corporate bond yields, which is provided
in Exhibit 10 (in conformance with the bond ratings for each
company).
Lastly, we calculated the WACC and reached a value of 9.50%
as the industry’s median and a value of 12.05% for Sun
Microsystems. Pertaining back to what the WACC signifies (as
stated in question 2), we can note that Sun Microsystems has a
cost of capital that is much higher than that of the industry.
This is reflected in the elevated rate of return that is expected to
be receive on capitalizing in Sun Microsystems (which denotes
that firm is much distressful compared to the other competing
companies that operate in the industry).
Finally, we computed the multiples using EBIT, EBITDA as
well as Sales (provided in Exhibit 9), which resulting with these
outcomes.Multiples Analysis
EBIT Multiple
EBITDA Multiple
Sales Multiple
Sun Microsystems
-1.41
-13.15
1.72
Median
9.40
6.28
1.39
We integrated the multiples’ average values, as they are
essential in computing Sun Microsystems’ implied enterprise
value (EV).
For us to do the comparable companies analysis (CCA), we

needed to figure out the average price per share. We determined
that the foremost thing to do was use the average EBIT,
EBITDA and Sales average values for the former two years
(2007-2008) in order to form our information on documented
historical data. Since the accessible data was only for the
former two years, we decided to include the data for both years.
In the excel sheet Q.4, we included the detailed computations of
our calculations in order to find the average price per share,
after which we reached an outcome of $13.06 as the average
share price. Economic Fundamentals
To compute the terminal value, we took the U.S. treasury’s
earnings (for 10 years) and used it as the risk-free rate (which
was substituted as the growth rate). Additionally, to compute
the average price per share needed foe the comparable
companies’ analysis (CCA), we computed the implied enterprise
value (EV) using the averages of the multiples mentioned
earlier. Knowing that this comparable companies’ analysis
(CCA) would be used to set a benchmark for Sun Microsystems
to be valued upon, we must keep in mind that this benchmark
might possibly result in an inaccurate computation of the real
worth of the company. This would be due to the main fact that
some companies are in a considerably more fiscally sound and
firm situation compared to our target firm (Sun Microsystems),
such as Apple or Dell.5. Identify the synergies and conduct a
sensitivity analysis to estimate the effect of synergies on
enterprise value.
The potential synergies that Madison mentioned were the
integral charges of $1.1 billion in total where $750 million
which were incurred in 2010 and the rest ($350 million) being
incurred in 2011. The team’s calculations which are estimated
as an initial loss of $45 million in operating income due to them
losing clients or/and delaying the purchases. Lastly, the cost
cutting that would be faced by Sun after their acquisition would
result in a reduction of the numbers of staff in Sun
Microsystems by an approximate of 20-25%. In addition to this
the selling, general and administrative (S, G&A) expenses

would be further reduced by 22-32%. Furthermore, new
products, licensing income, and the “integrated application to-
disk” service would result in a potential annual increase in
operating profit by a total of $900 million. As Madison had
previously assumed that these synergies would be slowly
increasing over a period of time, which is 3-years (from 2011
till 2013), this reaching its full capacity of $900 million in
2013. In Exhibit Q5.1 in the excel sheet there will found all the
effects of the synergy sources.
Valuing Sun Microsystems with Synergies are done in Excel
Sheet Exhibit Q5.1, Q5.2 and Q5.3. The levered beta was then
taken directly from Q2 in the Excel Sheet, however, the
unlevered beta was calculated using the following formula
(levered beta divided by (1+!1-T) multiplies by D/E). Where is
the weight of debt and E is the weight of Equity. In addition to
this, weight of debt, weight of equity, risk free rate, market risk
premium, cost of debt and equity, tax rate and lastly WACC
(weighted average cost of capital) were all taken directly from
Q2 in the Excel sheet. Growth rate is equal to risk free rate; this
is due to the fact that there a relationship between the two.
Therefore, any chnages that happen in the risk free rate is then
correlated to any changes in the sustainable growth rate as well,
the same issue goes for the stand alone DCF done for the above
question 3. For the EBIT Exit Multiple, earning before interest
and tax, on the other hand are taken from Exhibit Q4 in the
Excel Sheet from the EBIT Median Multiple. Book Value (BV)
of debt and Market Value (MV) of Equity are taken directly
from Exhibit 9 in the attached Excel Sheet. The total is
calculated by adding BV of debt and MV of equity. Finally, the
percentage of debt is calculated by dividing BV of debt over the
total. The second step to do is to the discounted free cash flow
analysis and to determine the free cash flows using the
synergies found. The steps below elaborate more:
· Sales and EBIT without synergies are going to be taken
directly from Exhibit 14. EBIT without synergies is equal to
operating income. As for the perpetuity growth for the sales is

calculated by multiplying the last year (2014) with (1+gtwoth
rate).
· The initial loss that is noticed in operating income is taken
directly from the page 679 in the book which is predicted to be
$45 million in year 2010. The main reason for this loss is due to
the loss of customer and/or any deferred purchases.
· As for any noticeable integration charges (any expenses) these
are taken from the same page as above, and the total is $1.1
billion with $750 million which is incurred in year 2010 and the
rest will be incurred in 2011 ($1.1 billion - $750 million) which
is equal to $350 million.
· There is a noticeable boost in operating profit by $900 million
per year where Madison assumed that synergies would slowly
increase over the three years starting from the year 2011.
Therefore, in 2011 it was calculated by dividing $900 million
by 3 years which will give us a total of $300 million. In the
2012, an increase was calculated by ($900 million minus $300
million) which will give us a total of $600 million. In 2013 and
2014, it is taken directly from the case in page 679 so the
number is $900 million.
· The following steps were taken to calculate EBIT with
Synergies (EBIT without synergies minus loss in operating
income minus integration charges plus increase in net operating
profit). These steps were taken for all years (2010 till 2014).
· Taxes were calculated by multiplying the EBIT with synergies
with the tax rate. However, for the year 2010, since it carries a
negative EBIT the resulting value would be the negative value
of taxes, which is why we put zero as negative taxes are
unrealistic (incorrect).
· NOPAT is then calculated by subtracting EBIT with synergies
and taxes. The perpetuity growth is then calculated by
multiplying the last year NOPAT with (1+growth rate).
· Then both Net Working Capital (NWC) and Net PPE
perpetuity growth were calculated by multiplying the last year
which was 2014 with (1+growth rate). Net Working Capital
(NWC) and Property, Plant and Equipment (PPE) were taken

directly from Q3.1.
· Change in NWC is the new year minus the prior year which is
done only from year 2010 till 2014 which is the same for the
perpetuity growth.
· The changes in capital expenditure (CAPEX) is calculated by
subtracting the new year PPE from the prior year PPE (for
example, 2010 PPE - 2009 PPE). This is because PPE is
considered as a capital expenditure (CAPEX). The same thing is
also done when calculating the perpetuity growth.
· Free Cash Flows (FCF) for the year 2010 till 2014 and for the
perpetuity growth are calculated as follows (NOPAT minus
Change in NWC minus Change in CAPEX). These free cash
flows as shown in the excel spreadsheet they are increasing
throughout the years.
· The DCF (Discounted Cash Flow) analysis was done by using
both the perpetuity growth and the multiples as what are shown
in the Excel Sheet (Q5.2 and 5.3). The NPV (Net Present Value)
for both methods were calculated by using the NPV function
which includes both the WACC and the Free Cash Flows from
2010 till 2014.
· There are two methods which can be used to calculate terminal
value: it is either perpetuity growth method or using comparable
company multiples. Using the DCF analysis with perpetuity
growth it indicates that Sun Microsystems will most likely grow
forever. The growth rate that was used is equal to the risk-free
rate which is 2.82%. As what was found for the terminal value
in the DCF with perpetuity growth that was calculated as the
last years FCF (2014) divided by (WACC minus growth rate). In
addition, the DCF with multiple is calculated as EBIT for the
year 2014 multiplied by the median EBIT multiple (9.40).
· When calculating the Net Present Value (NPV) of terminal
value (TV), we divided the terminal value by 1+WACC to the
power of 5 which indicates the 5 years which are between 2010
and 2014, this step was taken for both the DCF with perpetuity
and multiple methods.
· Enterprise value is calculated by NPV of FCF + NPV of TV.

Debt and cash were taken directly from Exhibit 11. Equity is
calculated as enterprise value minus debt plus cash.
· The total number of shares were taken directly from Exhibit 9
and price per share is found by equity divided by the number of
shares outstanding.
· The two methods will actually result in different prices per
share. The DCF with perpetuity growth will result in a price per
share of $12.79, whereas the DCF with the multiples price per
share will give a result of $16.32.
· If Oracle will acquire Sun Microsystems, certain synergies
would appear;
· Oracle will be able to utilize Sun’s Java in their own portfolio
to create many of their applications.
· By adding MySQL to Oracle company this will help them in
adding smaller cliental to their customer base.
· This acquisition will help Oracle to expand its products lines
and risks
· There will be a combination of both companies Research and
Development (R&D) and also their sales teams.The below table
shows the sensitivity analysis for the two approaches:
Stand-Alone Sensitivity Analysis:
Synergy Value Sensitivity Analysis:
The sensitivity analysis for the synergy values using both the
two methods perpetuity growth method (PGM) and the exit
multiple method (EMM) show a higher enterprise value then the
stand alone valuation preformed.
Summary of Results:
Enterprise Value
Equity Value
Price per share
Stand-Alone (Base-Case) using the Perpetuity method

3,653 million
5,465 million
$7.40
Stand-Alone (Base- Case) using the Multiples method
5,161 million
6,973 million
$9.44
Synergy using the Perpetuity method
7,632 million
9,444 million
$12.79
Synergy using the Multiple method
10,238 million
12,050 million
$16.32
Comparable Company method
$13.06
Oracle’s offer price
$9.50
Sun Microsystem (Current Share Price)
$6.69
Based on the above sensitivity analysis, what can be seen is that
in the Stand-Alone (Base Case) using the perpetuity method
which gave us an enterprise value of 3,653 million and an
equity value of 5,465 million which resulted in a price of $7.40
per share which is close to the price per share of Sun
Microsystems. Also, what can be noticed when we used the
multiple method for the Stand-Alone (Base Case) we got $9.44
price per share which has a difference of only $2.75 ($9.44-

$6.69). Therefore, the synergies valuation method was used to
receive the accurate results of share price. The synergy using
perpetuity method which has an enterprise value of 7,632
million and an equity value of 9,444 million resulted in a
$12.79 price per share. In addition, when using the multiple
method for the synergy the price per share of $16.32 shows a
major difference between Sun Microsystems and Oracle’s offer
price.6. If a competing bidder appears, how high a price should
Oracle be willing to offer?
Sun Microsystems Implied Offer Price
Perpetuity Growth Method
Exit Multiple
Sun Microsystems Share Price
DCF using the Standalone Value
$7.40
$9.44
$8.42
DCF using the Synergy Value
$12.79
$16.32
$14.55
Average CCA
$13.06
Current Offer Price by Oracle
$9.50
Oracle is presently proposing the shares for a value of $9.50 per
share for Sun Microsystems. We have used the three different
approaches (as portrayed in the table above) in order to
ascertain the highest price that Oracle is inclined to pay. In the
DCF using the standalone value with perpetuity growth method

offered us a value of $7.40 per share. However, when we used
the exit multiple method, we got a value of $9.44 per share.
Conversely, in the DCF using the synergy value, the perpetuity
growth method offered us a value of $12.79 per share while the
exit multiple method offered us a value of $16.32 per share. The
two values are higher than the price offered by Oracle (which is
equivalent to $9.50 per share) in comparison to the DCF with
the standalone value.
Moreover, the values of each method, the perpetuity method and
the multiples method, were not accounted for autonomously
because of the challenges faced (as stated earlier in question 2).
Thus, in order to avert misrepresenting the real worth of Sun
Microsystems, we decided to take the average of the two
methods. Accordingly, to find out what the highest price Oracle
might propose to Sun Microsystems, values ranging from $8.42
to $14.55 was given (marking the lowest and highest prices that
Oracle may offer to Sun Microsystems). As portrayed, it is
evident that share price derived through the comparable
companies’ analysis (CCA) and the price offered by Oracle are
both contained within the suggested range (prices are $13.06
and $9.50 respectively).
All in all, we decided that the optimum price that should be
proposed by Oracle is $11.38. This value was computed by
finding the average of all the prices represented above along
with the amount that is offered by Oracle
((8.42+14.55+13.06+9.50)/4= $11.38).
7- What approaches and methods are used for valuation of
Mergers and Acquisitions; their pros and cons, role of synergies
in M&A valuation.
8- How the IT sector in general and software industry in
particular has grown in last ten years, who are the major
players, what are the key trends and future outlook. Please
highlight a recent Merger and Acquisition transaction (other
than Sun Microsystem) in the IT sector.

Conclusion
To conclude the acquisition of Sun Microsystems by Oracle will
add additional platforms to their portfolio such as MySQL,
Solaris and Java. This acquisition can create also a case of
cannibalization ( when a new business affects the sales and
profits of the existing one) on the software’s which are being
provided by Oracle. The combination of these two companies
would give Oracle the chance to expand its market shares since
they will also be dealing with lower-end consumers. In addition
to this, Sun Microsystems calculated WACC is 12.05% which
means that investing in Sun would be providing a very good
appeal however with a high level of risk. Moreover, the
discounted cash flow method and the multiple valuation method
was used to know which price should Oracle give to Sun
Microsystems’s shares. The DCF method estimates the stand-
alone Sun Microsystem’s, using the WACC, enterprise value
and equity value. As shown on the Excel Spreadsheet, the
enterprise value accounted for $3,653 million and the equity
value of $5,465 million which gave us a share price of $7.40.
this share price is close to the original share price of $6.69 and
that occurred because of the way enterprise value was
calculated which was through terminal value that leads to a
conclusion that the values are coming from the future. Per the
DCF (Discounted Cash Flow) method, the investors are
investing in the future and not in the present of the company.
The final price per share that was concluded is a range $8.42 to
$14.55.

References:
http://www.referenceforbusiness.com/history2/64/Sun-
Microsystems-Inc.html#ixzz521NZNOdg
https://www.investopedia.com/terms/m/multiplesapproach.asp
https://www.investopedia.com/terms/c/comparable-company-
analysis-cca.asp
http://www.arborinvestmentplanner.com/enterprise-value-ev-
calculating-enterprise-value-ratios/
Title PageThis spreadsheet supports STUDENT analysis of the
case “Sun Microsystems” (Case 48)This spreadsheet was
prepared by Assistant Professor of Business Administration
Elena Loutskina. Copyright © 2010 by the University of
Virginia Darden School Foundation, Charlottesville, VA. All
rights reserved. For customer service inquiries, send an e-mail
[email protected] No part of this publication may be
reproduced, stored in a retrieval system, posted to the Internet,
or transmitted in any form or by any means—electronic,
mechanical, photocopying, recording, or otherwise—without the
permission of the Darden School Foundation. Rev. Nov. 2,
2012
Exhibit 4Exhibit 4SUN MICROSYSTEMSIT Industry
CompaniesPrimarily HardwareDescriptionKey ProductsNotable
AcquisitionsAdvanced Micro DevicesDevelops and
manufactures semiconductors and microprocessorsx86
microprocessors, microprocessors for computers and
servers*ATI Technologies (2006)AppleDesigns, manufactures
and markets personal computers, related software and mobile
communication and entertainment devicesMacintosh computers,
iPhones, iPods, music related productsDellOffers a wide range
of computers and related productsDesktop and laptop
computers, software and peripherals, servers*EqualLogic
(2008)EMCProvides enterprise storage systems, software,

networks and servicesInformation storage, VMwareHewlett-
PackardProvides imaging and printing systems, computing
systems, and information technology for business and
homeConsulting services, enterprise storage and servers,
personal computers, digital cameras, printers and ink*Compaq
(2002)
*EDS (2008)IntelDesigns and manufactures computing and
communications components and platformsMicroprocessors,
chipsets, motherboards, platformsInternational Business
MachinesOffers computer solutions through the use of advanced
information technologyConsulting services, middleware,
servers, laptopsNetAppProvides storage and data management
solutionsFilersSun MicrosystemsProvides products, services and
support for building and maintaining network computing
environmentsEnterprise systems and services, storage and
software platforms Java, Solaris and MySQL*MySQL
(2008)Primarily SoftwareAdobe SystemsDevelops, markets and
supports computer software products and technologyCreative
solutions, AcrobatMicrosoftDevelops, manufactures, licenses,
sells and supports software productsWindows, business and
server software, gaming and handheld devicesNovellProvides
network and Internet directory software and servicesEnterprise
networking softwareOracleSupplies software for enterprise
information managementRelational databases, middleware
software, applications, related services*PeopleSoft (2005)
*Siebel Systems (2006)
*Hyperion
Solution
s (2007)
*BEA Systems (2008)Red HatDevelops and provides open
source software and servicesLinuxSources: Industry reports and

Bloomberg.
Exhibit 5Exhibit 5SUN MICROSYSTEMSRelative Sales
Growth, 2000–08Primarily Hardware CompaniesPrimarily
Software CompaniesData source: Compustat.
AAPL2000200120022003200420052006200720080-
0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-
20.745083302016785741.41951647250407122.00714017286734
333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-
0.38707711283542912-0.2970880946928236-
7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830
142251.4263867820097578NTAP2000200120022003200420052
006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607
2031.0537514932626771.78704036828180882.28285923278598

582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AAPL20002001200220032004200520062
00720080-0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-
20.745083302016785741.41951647250407122.00714017286734
333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-
0.38707711283542912-0.2970880946928236-
7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830
142251.4263867820097578NTAP2000200120022003200420052
006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607

2031.0537514932626771.78704036828180882.28285923278598
582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AMD200020012002200320042005200620
0720080-0.16200852676456645-0.41927565565651781-
0.242280694199216167.6827010034020926E-
20.259205029929804990.211618793333620440.2613582533051
97910.25059213642823308INTC2000200120022003200420052
006200720080-0.21309968570242543-0.20642827492142557-
0.106297811777263831.4321295143213009E-
20.15121864436932934.9101583348158728E-
20.136630492794876270.11445175828737475IBM20002001200
22003200420052006200720080-6.0285533282048998E-2-
8.1564776686727902E-28.3148558758314728E-
38.9336621566586727E-23.0974252228607613E-
23.4254943662609172E-
20.117539255169917260.17233811484682571
ADBE2000200120022003200420052006200720080-
2.8947123212816339E-2-8.0220913502919267E-
22.24032634805722E-

20.31602175653714770.55271253922604481.033595024550332
1.49363223302994851.8268723872335118MSFT200020012002
20032004200520062007200800.129377940407736650.2356246
73288029160.402117093570308450.604591392228611250.7332
28785502700870.928994598362083981.226955915664751.6319
916361735496NOVL20002001200220032004200520062007200
80-0.10930390884918229-2.8615225200923078E-2-
5.329890771450696E-2-1.3117702218397143E-
22.5657362329638111E-2-0.1716639477278662-
0.20144638980590623-
0.18088179252998315ORCL20002001200220032004200520062
00720080-0.10927328191864361-0.12750587678891223-
6.4796800492685325E-28.6496903405554049E-
20.324165223406378990.657140289319972041.0654399138390
1831.1411328076943761RHT2000200120022003200420052006
200720080-0.23706117239845692-
0.120884858211913530.206015720929333180.89952527821017
3251.69102476094712272.87342041400380934.0567635769465
045.3093716462500842
AAPL2000200120022003200420052006200720080-
0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-
20.745083302016785741.41951647250407122.00714017286734

333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-
0.38707711283542912-0.2970880946928236-
7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830
142251.4263867820097578NTAP2000200120022003200420052
006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607
2031.0537514932626771.78704036828180882.28285923278598
582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AAPL20002001200220032004200520062
00720080-0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-

20.745083302016785741.41951647250407122.00714017286734
333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-
0.38707711283542912-0.2970880946928236-
7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830
142251.4263867820097578NTAP2000200120022003200420052
006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607
2031.0537514932626771.78704036828180882.28285923278598
582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AMD200020012002200320042005200620
0720080-0.16200852676456645-0.41927565565651781-

0.242280694199216167.6827010034020926E-
20.259205029929804990.211618793333620440.2613582533051
97910.25059213642823308INTC2000200120022003200420052
006200720080-0.21309968570242543-0.20642827492142557-
0.106297811777263831.4321295143213009E-
20.15121864436932934.9101583348158728E-
20.136630492794876270.11445175828737475IBM20002001200
22003200420052006200720080-6.0285533282048998E-2-
8.1564776686727902E-28.3148558758314728E-
38.9336621566586727E-23.0974252228607613E-
23.4254943662609172E-
20.117539255169917260.17233811484682571
ADBE2000200120022003200420052006200720080-
2.8947123212816339E-2-8.0220913502919267E-
22.24032634805722E-
20.31602175653714770.55271253922604481.033595024550332
1.49363223302994851.8268723872335118MSFT200020012002
20032004200520062007200800.129377940407736650.2356246
73288029160.402117093570308450.604591392228611250.7332
28785502700870.928994598362083981.226955915664751.6319
916361735496NOVL20002001200220032004200520062007200
80-0.10930390884918229-2.8615225200923078E-2-
5.329890771450696E-2-1.3117702218397143E-

22.5657362329638111E-2-0.1716639477278662-
0.20144638980590623-
0.18088179252998315ORCL20002001200220032004200520062
00720080-0.10927328191864361-0.12750587678891223-
6.4796800492685325E-28.6496903405554049E-
20.324165223406378990.657140289319972041.0654399138390
1831.1411328076943761RHT2000200120022003200420052006
200720080-0.23706117239845692-
0.120884858211913530.206015720929333180.89952527821017
3251.69102476094712272.87342041400380934.0567635769465
045.3093716462500842
Apple
AAPL2000200120022003200420052006200720080-
0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-
20.745083302016785741.41951647250407122.00714017286734
333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-
0.38707711283542912-0.2970880946928236-

7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830
142251.4263867820097578NTAP2000200120022003200420052
006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607
2031.0537514932626771.78704036828180882.28285923278598
582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AAPL20002001200220032004200520062
00720080-0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-
20.745083302016785741.41951647250407122.00714017286734
333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-

0.38707711283542912-0.2970880946928236-
7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830
142251.4263867820097578NTAP2000200120022003200420052
006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607
2031.0537514932626771.78704036828180882.28285923278598
582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AMD200020012002200320042005200620
0720080-0.16200852676456645-0.41927565565651781-
0.242280694199216167.6827010034020926E-
20.259205029929804990.211618793333620440.2613582533051
97910.25059213642823308INTC2000200120022003200420052
006200720080-0.21309968570242543-0.20642827492142557-
0.106297811777263831.4321295143213009E-
20.15121864436932934.9101583348158728E-
20.136630492794876270.11445175828737475IBM20002001200

22003200420052006200720080-6.0285533282048998E-2-
8.1564776686727902E-28.3148558758314728E-
38.9336621566586727E-23.0974252228607613E-
23.4254943662609172E-
20.117539255169917260.17233811484682571
ADBE2000200120022003200420052006200720080-
2.8947123212816339E-2-8.0220913502919267E-
22.24032634805722E-
20.31602175653714770.55271253922604481.033595024550332
1.49363223302994851.8268723872335118MSFT200020012002
20032004200520062007200800.129377940407736650.2356246
73288029160.402117093570308450.604591392228611250.7332
28785502700870.928994598362083981.226955915664751.6319
916361735496NOVL20002001200220032004200520062007200
80-0.10930390884918229-2.8615225200923078E-2-
5.329890771450696E-2-1.3117702218397143E-
22.5657362329638111E-2-0.1716639477278662-
0.20144638980590623-
0.18088179252998315ORCL20002001200220032004200520062
00720080-0.10927328191864361-0.12750587678891223-
6.4796800492685325E-28.6496903405554049E-
20.324165223406378990.657140289319972041.0654399138390
1831.1411328076943761RHT2000200120022003200420052006

200720080-0.23706117239845692-
0.120884858211913530.206015720929333180.89952527821017
3251.69102476094712272.87342041400380934.0567635769465
045.3093716462500842
NetApp
AAPL2000200120022003200420052006200720080-
0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-
20.745083302016785741.41951647250407122.00714017286734
333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-
0.38707711283542912-0.2970880946928236-
7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830
142251.4263867820097578NTAP2000200120022003200420052

006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607
2031.0537514932626771.78704036828180882.28285923278598
582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AAPL20002001200220032004200520062
00720080-0.32819741951647252-0.28072153325817362-
0.222472754603532553.7078792433921981E-
20.745083302016785741.41951647250407122.00714017286734
333.068520606288363DELL20002001200220032004200520062
00720080-2.2579026593075757E-
20.110260913196186690.299673858504766690.5430569493226
29160.749498243853487180.800677370797792330.9171161565
47917780.91611264425489214EMC20002001200220032004200
52006200720080-0.20085878034662286-
0.38707711283542912-0.2970880946928236-
7.2505504453152292E-28.9164364503895754E-
20.257220931889041720.491094259139375660.6765999655577
2128HPQ2000200120022003200420052006200720080-
7.2895740232052808E-
20.16001803944077730.497704071173793670.63800172194661
9640.777212906399901590.878930753146652371.13779672830

142251.4263867820097578NTAP2000200120022003200420052
006200720080-0.20653934759577253-
0.113416406111792490.163113976938657370.58830474683607
2031.0537514932626771.78704036828180882.28285923278598
582.513374266785664JAVA20002001200220032004200520062
007200800.16086762928566878-0.2051396221614401-
0.27269257680809111-0.28853126391450923-
0.2958463202086381-0.16875516824629477-
0.11754977418739265-
0.11710450989122834AMD200020012002200320042005200620
0720080-0.16200852676456645-0.41927565565651781-
0.242280694199216167.6827010034020926E-
20.259205029929804990.211618793333620440.2613582533051
97910.25059213642823308INTC2000200120022003200420052
006200720080-0.21309968570242543-0.20642827492142557-
0.106297811777263831.4321295143213009E-
20.15121864436932934.9101583348158728E-
20.136630492794876270.11445175828737475IBM20002001200
22003200420052006200720080-6.0285533282048998E-2-
8.1564776686727902E-28.3148558758314728E-
38.9336621566586727E-23.0974252228607613E-
23.4254943662609172E-
20.117539255169917260.17233811484682571

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