Nhere’s never a dull moment with Sun Microsystems. Not even the final weeks before the troubled company gets acquired by Oracle can be drama-free.
Sun publicly disclosed two potentially thorny legal issues in a 10-Q SEC filing on Friday that has set the presses buzzing. First, Sun may have, er, well, violated federal anti-bribery laws.
During fiscal year 2009, we identified activities in a certain foreign country that may have violated the Foreign Corrupt Practices Act (FCPA). We initiated an independent investigation with the assistance of outside counsel and took remedial action. We recently made a voluntary disclosure with respect to this and other matters to the Department of Justice (DOJ), Securities and Exchange Commission (SEC) and the applicable governmental agencies in certain foreign countries regarding the results of our investigations to date. We are cooperating with the DOJ and SEC in connection with their review of these matters and the outcome of these, or any future matters, cannot be predicted. The FCPA and related statutes and regulations provide for potential monetary penalties, criminal sanctions and in some cases debarment from doing business with the U.S. federal government in connection with FCPA violations, any of which could have a material effect on our business.
Few details are available yet about exactly where and what violations took place. The Associated Press reported that Oracle reps said the company knew about this before agreeing to acquire Sun.
Clearly Sun has had its problems over the past few years. Now the question becomes, where does it end? A substantial portion of Sun’s business is in government. If it’s blocked from doing business with that market sector, the effects could be devastating. Then, according to Enterprise Strategy Group analyst Brian Babineau, “the question is: do the penalties apply to the new entity” of Sun-Oracle?”
This does not bode well for Sun founder Scott McNealy’s previously announced project to present open-source options to government agencies looking to cut costs. “I am pretty sure that recommendation will not be recieved with open arms given this scenario,” said Babineau. “The government is unlikely to be associated with someone involved with giving or receiving bribes.”
But wait, there’s more! The second issue also relates to the Oracle acquisition. Sun shareholders have filed several class-action suits in response to the proposed deal. According to Sun’s SEC filing:
Three putative shareholder class actions were filed by individual shareholders on April 20, 2009, April 30, 2009 and April 30, 2009, respectively, in Santa Clara County Superior Court naming Sun and certain of our officers and directors, as well as Oracle Corporation, as defendants. The complaints, which are similar, seek to enjoin the proposed acquisition of Sun by Oracle Corporation and allege claims for breach of fiduciary duty against the individual defendants and for aiding and abetting a breach of fiduciary duty against the corporate defendants. The complaints generally allege that the consideration offered in the proposed transaction is unfair and inadequate. Sun and the other defendants have not yet responded to the complaints.
This isn’t an unheard-of event when two big companies are merging, but it’s definitely something to keep an eye on.