Every Reason Oracle & Microsoft Would (Or Would Not) Acquire Salesforce

In a report published Thursday, JMP Securities analyst Patrick Walravens offered the top reasons why Oracle Corporation (NYSE: ORCL) and Microsoft Corporation (NASDAQ: MSFT) would and would not acquire salesforce.com, inc. (NYSE: CRM)

Why Oracle Would Buy Salesforce:

• Executive Chairman Larry Ellison wants to be the No. 1 player in the cloud space.
• As of February 28, Oracle had $44 billion in cash and marketable securities with another $10 billion in debt financing. The company will also generate over $11 billion in free cash flow over the next two quarters, implying the company has sufficient cash to proceed with an acquisition.
• Ellison is a "mentor" to Salesforce's CEO Marc Benioff.
• Benioff would be a suitable CEO for the combined company.
• Oracle acquiring Salesforce would ensure Salesforce continues running on the Oracle database.
• Oracle would improve its strategic position against Workday Inc (NYSE: WDAY) and SAP SE (NYSE: SAP).
• Oracle's co-CEO Mark Hurd and Ellison have made comments lately about the prospects of surpassing Salesforce in cloud revenue, suggesting Salesforce has been "top of mind" for Oracle.
• Oracle's Fusion might not be as good as the company is suggesting.

Related Link: J.P. Morgan: Salesforce Could Fetch $100/Share In Bidding War

Why Oracle Would Not Buy Salesforce:

• As of May 31, 2014, $35.2 billion of Oracle's cash was held by foreign subsidiaries.
• The price tag of an acquisition would be "expensive" if Salesforce demands at least a further 25 percent premium after Wednesday's run up in share price.
• A merger would be (in the words of a Salesforce partner) a "cultural disaster" as there is "bad blood" with a lot of the top leadership.
• There could be a risk of high non-renewal rates.
• Industry sources suggest that Oracle's President of Product Development, Thomas Kurian, "doesn't know apps."

Why Microsoft Would Buy Salesforce:

• Microsoft wants a bigger presence in the cloud.
• As of March 31, 2015, Microsoft has $95 billion in cash and short-term investments.
• Microsoft and Salesforce already have an existing partnership dating back to May 2014. Industry sources note a "very good collaboration on both sides."
• With Windows 10 coming out, an acquisition is a "good time" to capture more applications.
• Owning Salesforce and optimizing the platform for Windows Phone would make Microsoft Mobile an excellent default solution for enterprises.
• Microsoft has already demonstrated a willingness to be cross-platform with Azure.

Why Microsoft Would Not Buy Salesforce:

• As of June 30, 2014, $77 billion of Microsoft's cash and short-term investments was held by foreign subsidiaries.
• An acquisition would reduce Microsoft's operating margins.
• Microsoft seems to be "hitting its stride" and an acquisition would prove to be a distraction.