Transatlantic internet row poses threat to technology giants' deals

Oracle's hopes of completing a 4.4 billion takeover of Sun Microsystems by the end of the summer have been dashed following a new wave of competition measures introduced by the European Commission (EC) that is hitting technology giants in the US.

Shareholders of both American multinationals – each with a significant presence in Scotland – approved the merger that was agreed on by the two companies back in April and represents 5.60 per share, almost double the value of Sun's shares at the time.

However, the Oracle/Sun takeover, together with another current big deal, the 10-year search engine partnership by Microsoft and Yahoo, appear to have become victims of fresh tensions that are emerging between Europe and the US about the future direction of the internet – in particular, claims by the EC that America is being too protectionist and should loosen its grip on ownership of protocol addresses and domain names such as .com, .net, .org and .ed.

Currently they are handled by the Californian-based Internet Corporation for Assigned Names and Numbers (ICANN), with the US Government having oversight of the body.

An EC spokeswoman said the proposed Oracle takeover of Sun will be scrutinised by European Union competition regulators. It is now likely that an an-depth investigation, taking at least 90 working days from the end of last month, will go ahead.

Completion of the deal is expected be around four months away, if it is approved.

Oracle "stole" Sun from under the nose of IBM, which had appeared the most likely candidate for takeover before negotiations stalled. Significantly, during the European watchdog's investigation, third parties will be invited to contribute to the EC's review.

One Scottish technology sector source said: "It is understood that regulators are concerned about the combined companies' market share for enterprise databases, not to mention queries over Sun's current Java licensing arrangements as they impact in the global marketplace."

Wall Street analyst Rebecca Arbogast, of Stifel, Nicolaus said of the Microsoft/Yahoo: "We believe (US) government approval is doable. But we continue to believe there is a material risk that the deal would be blocked or conditioned."

David Balto, former policy director of the US Bureau of Competition at the Federal Trade Commission, added: "Microsoft and Yahoo have a tough battle on their hands."

Another source said that the EC has been more aggressive than its US counterparts in scrutinising mergers and joint ventures.

The deal, where Microsoft's Bing search engine would power search queries on Yahoo's sites, would reduce the number of competing search engines down from three to two.

Antitrust attorney John Briggs, of Axinn, Veltrop and Harkrider, said: "The question is: is it OK? Is two enough?"

But Evan Stewart, an antitrust expert with Zuckerman Spaeder, claimed: "This is good for the competitive marketplace." He explained that the proposed deal would create a stronger competitor to Google, which has a 65 per cent market share.