Sun admits breaking anti-bribery laws

Author: Gareth Halfacree
Published: 12th May 2009
Comments (9) Stumble
Sun admits breaking anti-bribery laws

Larry Ellison's Oracle was allegedly aware of Sun's offences under the Foreign Corrupt Practices Act prior to acquiring the company.

Oracle might have bitten off more than it can chew in its recent acquisition of Sun, with the revelation that Sun has broken anti-bribery laws that could see it landing in some seriously hot water.

According to a report over on Fudzilla, Sun has declared in its most recent regulatory filing that it has discovered “potential violations” of the US Foreign Corrupt Practices Act.

The FCPA is designed to prohibit companies based in the US – or that have stock traded on a US market – from bribing officials in foreign governments. Although Sun isn't claiming it has carried out any illegitimate activities within US borders, the FCPA would apply to bribery carried out in other countries because the company is based and traded in the US.

While Sun has been light on the details of the transgressions, it has declared that “remedial action” was taken as soon as the bribery was brought to light. In order to minimise damage, the company has alerted the US Justice Department and the Securities and Exchange Commission – both of whom have launched an investigation into the offences.

Sun has also declared that Oracle was aware of the issues prior to the agreement to purchase Sun for a massive $7.4 billion (£4.78 billion at the time) – but under US law Oracle could find itself being punished even if the offences occurred prior to the takeover.

Traditionally, the Securities and Exchange Commission has been quick to mete out harsh punishments to companies found guilty of both domestic and international bribery, with tech giant Siemens AG being forced to pay fines totalling $450 million when found guilty of offences under the Foreign Corrupt Practices Act at the end of last year. With a possible legal burden that heavy, could Larry Ellison be regretting his company's latest acquisition?

Should Sun be fined under US law for actions that occurred outside its borders, or is it what the companies deserves for stooping as low as bribery to get things done? Share your thoughts over in the forums.
Quote liratheal 12th May 2009, 10:19
...rofl.

If they did know about these things, why the hell would they buy them?

I'll piss myself if this sinks Oracle.
Quote mclean007 12th May 2009, 11:48
Quote:
Originally Posted by liratheal
...rofl.

If they did know about these things, why the hell would they buy them?

I'll piss myself if this sinks Oracle.
It's called due diligence - the process of identifying the risks associated with a corporate acquisition before going ahead with the purchase. You identify risks, and make an assessment of them. This is a biggie, and if Oracle didn't know about it before the purchase, they'd be suing either their lawyers (for negligently failing to identify the risk) or Sun's previous owners (if they tried to cover it up or didn't make fair disclosure against their warranties). Maybe Oracle used this liability as a bartering chip to reduce the purchase price. In any event, I'm sure they knew what they were getting into and have made provisions.
Quote liratheal 12th May 2009, 11:52
Quote:
Originally Posted by mclean007
It's called due diligence - the process of identifying the risks associated with a corporate acquisition before going ahead with the purchase. You identify risks, and make an assessment of them. This is a biggie, and if Oracle didn't know about it before the purchase, they'd be suing either their lawyers (for negligently failing to identify the risk) or Sun's previous owners (if they tried to cover it up or didn't make fair disclosure against their warranties). Maybe Oracle used this liability as a bartering chip to reduce the purchase price. In any event, I'm sure they knew what they were getting into and have made provisions.

I'd have thought that the entire process would be very well detailed, but I find it very weird that Oracle would pay 7.4bn for a company that would end up under investigation for something that could end up with a fine in the hundreds of millions (See reference to Siemens in the article). Seems very unusual to me, admittedly with a less than basic knowledge of big business take-overs.
Quote JyX 12th May 2009, 13:29
If we knew how much IBM was going to pay for Sun... we might have had an idea.
Quote MajestiX 12th May 2009, 14:35
sometimes taking a fine is less than what it costs to comply to the law, There was a case here where ISP would break laws because they failed to deliver regulatory standard of service, their excuse was it cost them less to pay the fines then fix the problem.

so there was probably more to gain the what the fine would be worth, eg market stake which would mean more capital in the future.
Quote perplekks45 12th May 2009, 16:11
IBM offered $8 billion first, then lowered it to $7 billion.
If they knew they should be punished. End of story.
Quote Otto69 12th May 2009, 19:41
Bribery was probably either in India, where they outsourced a bunch of US jobs, or in the Mideast where they wanted to sell servers.
Quote mclean007 13th May 2009, 09:28
Quote:
Originally Posted by liratheal
I'd have thought that the entire process would be very well detailed, but I find it very weird that Oracle would pay 7.4bn for a company that would end up under investigation for something that could end up with a fine in the hundreds of millions (See reference to Siemens in the article). Seems very unusual to me, admittedly with a less than basic knowledge of big business take-overs.
Yeah, I can see that it does seem weird, but it's called "price chipping" - a common buyer's negotiation strategy in a corporate acquisition is to get things rolling with a fair offer based on the target being as good as it looks from the outside (before due diligence), then chipping away at that price for each significant liability (potential or actual) that they uncover during the due diligence process. So it may be that Oracle's original offer was (say) $8bn, but the risk of fines associated with the bribery issue, together with other issues, brought the final price down to $7.4bn.

Almost every company of any size will have some kind of potential liability lying in wait, whether it be some ex-employees who might sue for unfair dismissal, claims for intellectual property infringement, issues with existing contracts (e.g. potential default on bank loans), major customers or suppliers at risk of insolvency or in disputes with the target... the list is endless. The buyer's job is always to uncover as much as possible and to make an assessment as to what they are willing to pay, based on the state of the company in light of the risks. In some cases, that is enough to sink the deal, because the buyer pulls out or reduces his offer to below the price at which the seller is willing to sell, or because the buyer's financial backers refuse to finance the purchase on the basis that the risks are too great. In other cases, it results in a price adjustment. Or the buyer may ask for indemnities against identified risks from the seller. Or, if the buyer wants to buy more than the seller wants to sell, the seller's negotiating position is stronger and he may be able to stand his ground and force the buyer to go ahead at the original price, notwithstanding any nasties that have come up in due diligence.

And that concludes M&A 101 ;-)
Quote liratheal 13th May 2009, 09:33
Quote:
Originally Posted by mclean007
Yeah, I can see that it does seem weird, but it's called "price chipping" - a common buyer's negotiation strategy in a corporate acquisition is to get things rolling with a fair offer based on the target being as good as it looks from the outside <snip>

And that concludes M&A 101 ;-)

Ahh, I see.

I'm now wondering what the fine will be..
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