Oracle Shops for Growth With MICROS Systems

Oracle acquires MICROS Systems for $5.3 billion.

Jun 23, 2014 at 10:15AM

It's "merger Monday" (again!), yet U.S stocks are little changed this morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) down 0.05% and 0.15%, respectively, at 10:15 a.m. EDT. The health-care sector has been remarkably active this year when it comes to mergers and acquisitions, but it's the technology sector's turn to grab the headlines today: Oracle (NYSE:ORCL) announced this morning that it is acquiring MICROS Systems (NASDAQ:MCRS) for $68 per share in a transaction valued at $5.3 billion – one of the largest technology acquisitions so far in 2014.

Oracle

Source: Wikimedia Commons.

This is Oracle's largest acquisition since it bought Sun Microsystems for $7.4 billion in 2010. That's a particularly meaningful statistic in the case of Oracle, which is a serial acquirer of companies.

The rationale for the deal is not hard to discern: growth. The database and software mastodon has come under pressure from Wall Street due to subpar growth. On Friday, shares of Oracle fell 4% after it announced disappointing results for its fiscal fourth quarter ended on May 31. Revenue rose just 3% year over year to $11.3 billion (for reference this is less than the rate of growth of the entire U.S. economy), nearly $200 million short of analysts' consensus estimate. Oracle also missed on profit, with adjusted EPS of $0.92 where analysts had been looking for $0.95.

With over $37 billion in net cash on its balance sheet, acquisitions are an obvious answer to Oracle's growth conundrum. Analysts were expecting MICROS to grow its EPS at 18% per annum over the next five years, nearly twice the equivalent 9.4% forecast for Oracle.

MICROS sells Internet-connected cash registers, as well as the software they run on, to retail outlets, restaurants, and casinos -- over 330,000 sites worldwide. The franchise represents an opportunity for Oracle to expand its footstep in the retail and hospitality markets.

Although the agreed price of $68 per share is less than a 4% premium to MICROS' closing price on Friday, it represents an 18% premium to the "undisturbed" closing price on June 16 (the next day, Bloomberg reported that the two companies were nearing a deal).

Furthermore, Oracle doesn't appear to be getting MICROS Systems on the cheap: As of Friday's close, MICROS' shares were valued at 23 times estimated EPS for the fiscal year ending June 20, 2015 (at more than 16, the enterprise value-to-EBITDA multiple also suggests the stock is at least fully valued). The deal looks a bit expensive, but, given that Oracle expects it to be immediately accretive to adjusted earnings per share, it's the sort of transaction that Wall Street ought to appreciate.

A genuine secular growth story: Will this stock be your next multi-bagger?
Give us five minutes and we'll show how you could own the best stock for 2014 and beyond. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers