HP and Oracle: Supernova Merger?

During his keynote at Oracle OpenWorld, HP (HPQ) CEO Mark Hurd gave his views on market consolidation. It’s an appropriate setting given Oracle (ORCL) has made 41 acquisitions in 45 months. HP is no slouch at acquisitions in its post-Compaq era, with more than 20 in the last few years, including Mercury for $4.5 billion and most recently Opsware for $1.6 billion. Tuesday, HP announced a small acquisition, EYP Mission Critical Facilities, a datacenter consulting service with 350 employees, while Oracle took a day off from its pursuits, which recently included BEA (BEAS).

Hurd sees continuing industry consolidation and vertical integration going forward, which is no surprise. Lately, some mid-size companies being bought out by private equity firms, and the larger companies are still on the hunt. Today, IBM (IBM) took out Cognos for $5 billion.

But he seems to suggest that the market is shaping up for some very large scale transactions in the next few years. “In the end, math wins. A handful of players have in excess of $100 billion in cash. We’ll see more consolidation, not less. At the same time, we are all getting a push from an IT perspective to do more standardization and to have fewer suppliers,” Hurd said.

Over time, fewer suppliers means moving from the large buying the small- and medium-sized to the large munching on the large, more mergers of near equals, carving up the market into fewer fiefdoms within the complex bounds of global regulatory approval.

“It could happen in two or three years if the right alignment of players occurs,” he added.

Hurd didn’t elaborate on the “right alignment of players,” and made a point of saying that he wasn’t making a prediction.

He explained that companies with lots of cash can pay dividends to shareholders, buy back stock or make acquisitions. “You have to measure the value of the three choices, and in many cases potential M&A activities will rise to the top.”

“You can figure it out as well as I can,” Hurd told the rapt OpenWorld crowd. “The numbers won’t mislead you.” Hurd is well known for his acumen with the numbers, but gave no further insights.

Following the trajectory of the numbers for a moment, it’s not that far fetched to see HP and Oracle in a consolidation supernova if the planets align in a certain way. Or, how about SAP and IBM, or some other combination. Or Cisco and HP. Or Microsoft and ???

Take your pick. It’s just ungoverned speculation, but consolidation in maturing market tends toward singularity. Of course, that could be the beginning of the end for those long established brands, as Google or a company no one had heard of rears its head and completely changes the rules of the game.