Oracle agrees to buy Cerner for $28.3bn in expansion into health

Oracle Corp agreed to acquire medical-records systems provider Cerner Corp for about $28.3bn, a deal that would add a broad customer base in the healthcare industry to bolster the software maker’s cloud-computing and database businesses.The all-cash transaction, Oracle’s biggest-ever deal, will see Oracle pay $95 a share, the companies announced in a statement. The price represents a 20% premium over Cerner’s market value last Thursday, before the deal talks first became public. Oracle chief executive officer Safra Catz said the acquisition should be “immediately accretive to Oracle’s earnings” on an adjusted basis in the first full fiscal year after closing and contribute “substantially more to earnings in the second fiscal year and thereafter.” The transaction is expected to close next year, the companies said.Oracle, the second-biggest software maker by revenue, is best known for legacy database products. The company has struggled in recent years to gain ground in cloud computing, in which companies rent data storage and analytic power from large server centres, trailing far behind market leaders such as Amazon.com Inc and Microsoft Corp.The deal for Cerner gives Oracle a huge foothold in technology for the healthcare industry - a sector expected to spend $15.8bn on cloud infrastructure and software by 2023, according to market researcher IDC - given Cerner’s robust user base, which includes many of the top US hospital systems. And as Oracle moves more of Cerner’s systems onto its own cloud infrastructure, the company gains an important case study to help future sales. “Data is where it’s at in healthcare. The ability to not just have a customer and an increased footprint, but to showcase Oracle’s database capabilities is a big thing for them,” said Rebecca Wettemann, CEO at advisory firm Valoir. Microsoft, too, sees the opportunity in healthcare. It announced in April that it would spend $19.6bn for speech-recognition pioneer Nuance Communications Inc to gain artificial-intelligence technology focused on helping doctors predict patients’ needs and upgrading hospitals’ digital record-keeping.The challenge for Oracle is persuading Cerner customers, many that probably already run some Oracle products in their own corporate date centres, to make the jump to its modern, cloud-based applications on the promise that more tailored healthcare offerings will be available in the next few years. “If I’m a hospital system and I’m trying to upgrade into something new, Oracle suddenly becomes a very interesting play,” said Bloomberg Intelligence senior analyst Anurag Rana. “You have a massive, large untapped market and if Oracle can create a good product out of it, you are going to start to attract more hospitals.” David Feinberg, formerly vice president of Google Health, took over as Cerner’s chief executive officer on October 1, saying a major goal would be to use data as a diagnostic tool to help doctors and nurses improve patient care. Two years ago, Cerner announced a deal with Amazon’s cloud division to develop programs trying to predict medical diagnoses or recommend courses of treatment for patients. It’s unclear how Oracle will navigate that challenge, given it would be a complicated undertaking to move systems that are now supported by AWS onto Oracle’s infrastructure. Cerner’s choice of Feinberg as CEO highlighted the company’s move toward “a strategy based on big data, population health management and consumerism - and away from the legacy health records business,” Donald Hooker, an analyst at KeyBanc Capital Markets, said when Feinberg was named to the post in August.Cerner, which competes with Epic Systems Corp and Allscripts Healthcare Solutions, among others, generated $5.51bn in revenue during 2020, and sales are projected to rise by 5% to $5.8bn this year. The company is based in North Kansas City, Missouri, has about 23,000 employees. The acquisition is Oracle’s biggest since its 2016 purchase of NetSuite Inc, a deal valued at $8.7bn. That purchase has provided Oracle with financial software targeted to small- and mid-sized businesses, which has become among Oracle’s fastest growing products.