Eddy Elfenbein submits: Oracle (ORCL) made its first trip to the bond market this week, and as reported in the Wall Street Journal (sub. req.) its debt quickly sold out. That’s good news for Larry & Co. I admire Oracle a lot but I’m nervous about its growth-through-acquisition strategy. That almost always means trouble; still, I think Larry Ellison is one of the few people who can turn the trick. But it ain’t gonna be easy.
The software giant has been on a buying binge lately (Siebel, PeopleSoft, Retek). Oracle is a truly remarkable company. It generates ginormous amounts of cash. They don’t pay a dividend, and the stock hasn’t done much of anything for the last few years. I think they saw that they had to do something. And quick.
The acquisitions went well, but now Oracle has to pay for them. The company’s debt offering came in three sections. The first part was for $1.5 billion at three years. The next was for $2.25 billion of five-year bonds, and finally $2 billion of 10-year bonds. That’s’ called laddering—it lowers your risk. In the secondary market, the bonds traded at a premium. This is clearly a vote of confidence in Oracle.
As I’ve mentioned before, there’s a bear market going on in the price of risk. The bond market is notoriously splenetic. If they saw something they didn’t like, you’d know about it. I think the bond traders jumped at something—anything that was paying a premium over government debt. It looks as if Oracle picked the right time to issue its debt. I can’t think of a similar tech stock that has had a major bond offering.
Oracle’s game plan still has a ways to go, but this debt offering is a good start.
ORCL 1-yr Chart
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