Business software maker Oracle said Monday that is has agreed to acquire Silicon Valley neighbor Sun Microsystems for $7.4 billion.

Under the terms of the deal, Oracle will pay $9.50 per share for Sun's common stock. Oracle said it expects Sun's operations will boost earnings per share by at least 15 cents in the first full year after the deal closes while contributing more than $1.5 billion in first-year profits.

The agreement is subject to closing conditions and could require a nod from trustbusters in the Justice Department if it's deemed that the tie-up represents a threat to competition in the computing industry.
Word of the merger comes just days after IBM reportedly backed off acquisition talks with Sun after executives from the two companies failed to agree on a price.

Oracle executives said the acquisition would allow their company to offer a complete portfolio of products and services and help spare customers the frustration of having to build business IT systems from piece parts.

"The acquisition of Sun transforms the IT industry, combining best-in-class software and mission-critical computing systems," Oracle CEO Larry Ellison said in a statement. "Oracle will be the only company that can engineer an integrated system -- applications to disk -- where all the pieces fit and work together so customers do not have to do it themselves."

Sun's proprietary hardware business has all but dried up in the face of competition from commodity players such as Intel and Dell (Dell), and it's struggling to keep pace with larger players in the software business, such as IBM, Microsoft, and Oracle itself.

Yet the company retains key, widely used assets, including the Solaris operating system, the open source MySQL database -- which boasts more than 11 million installations -- and the Java programming language, which has become a standard for Web application development.

Ellison said combining those offerings with Oracle's database and back-office automation applications would help businesses cut computing costs while increasing efficiency. "Our customers benefit as their system integration costs go down while system performance, reliability, and security go up," said Ellison.

Sun CEO Jonathan Schwartz said in a statement that the deal marks "a fantastic day" for Sun and its customers, while chairman Scott McNealy called the agreement "an industry-defining event" and said Sun and Oracle have been close partners "for more than 20 years."

Ellison is no stranger to mergers. Under his watch, Oracle has in recent years gobbled up a number of key players in the IT industry, including PeopleSoft, Siebel, I-flex, Primavera, BEA, and Hyperion.

Sun shares closed at $6.69 on Friday and were poised to surge in opening trading Monday.