Oracle’s $28.3B Cash Acquisition of Cerner Elicits Mixed Responses

Dec. 21, 2021
On Monday, the Oracle Corporation announced its acquisition of Cerner, leading to a wide range of reactions from industry leaders, analysts, and stock traders

On Monday, Dec. 20, the Santa Clara, Calif.-based database company Oracle Corporation announced it was acquiring the Kansas City, Mo.-based electronic health record (EHR) vendor Cerner Corporation; industry, analyst, and Wall Street trader reaction was mixed.

As CNBC’s Jessica Bursztynsky wrote on Monday morning, “Enterprise software giant Oracle will buy electronic medical records company Cerner in an all-cash deal for $95 per share, or approximately $28.3 billion in equity value. The deal, expected to close in calendar year 2022, could help Oracle boost its presence in health care by bringing troves of health data to its cloud services. Oracle shares closed down 5 percent Monday after the companies announced the deal. Shares initially fell 6% on Friday after The Wall Street Journal first reported Oracle would buy Cerner. The massive acquisition is the biggest ever for Oracle, one of the largest software providers. The company, founded in 1977, had a market cap around $264 billion as of early Monday morning. It comes amid a surge in global mergers and acquisition activity. M&A topped $5 trillion for the first time ever in 2021, led by technology and health care, according to a report cited by Reuters.”

The two companies posted the official announcement in the form of a press release, on their respective websites. As posted to Cerner’s website, the announcement began thus: “December 20, 2021 — Oracle Corporation (NYSE: ORCL) and Cerner Corporation today jointly announced an agreement for Oracle to acquire Cerner through an all-cash tender offer for $95.00 per share, or approximately $28.3 billion in equity value. Cerner is a leading provider of digital information systems used within hospitals and health systems to enable medical professionals to deliver better healthcare to individual patients and communities.

“Working together, Cerner and Oracle have the capacity to transform healthcare delivery by providing medical professionals with better information—enabling them to make better treatment decisions resulting in better patient outcomes,” said Larry Ellison, Chairman and Chief Technology Officer, Oracle. “With this acquisition, Oracle’s corporate mission expands to assume the responsibility to provide our overworked medical professionals with a new generation of easier-to-use digital tools that enable access to information via a hands-free voice interface to secure cloud applications. This new generation of medical information systems promises to lower the administrative workload burdening our medical professionals, improve patient privacy and outcomes, and lower overall healthcare costs.”

“We expect this acquisition to be immediately accretive to Oracle’s earnings on a non-GAAP basis in the first full fiscal year after closing—and contribute substantially more to earnings in the second fiscal year and thereafter,” said Safra Catz, Chief Executive Officer, Oracle. “Healthcare is the largest and most important vertical market in the world—$3.8 trillion last year in the United States alone. Oracle’s revenue growth rate has already been increasing this year—Cerner will be a huge additional revenue growth engine for years to come as we expand its business into many more countries throughout the world. That’s exactly the growth strategy we adopted when we bought NetSuite—except the Cerner revenue opportunity is even larger.”

And the press release quoted David Feinberg, M.D., president and CEO of Cerner, as stating that “Cerner has been a leader in helping digitize medical care and now it’s time to realize the real promise of that work with the care delivery tools that get information to the right caregivers at the right time,” said David Feinberg, President and Chief Executive Officer, Cerner. “Joining Oracle as a dedicated Industry Business Unit provides an unprecedented opportunity to accelerate our work modernizing electronic health records (EHR), improving the caregiver experience, and enabling more connected, high-quality and efficient patient care. We are also very excited that Oracle is committed to maintaining and growing our community presence, including in the Kansas City area.”

Meanwhile, Adam Gale, CEO of the Pleasant Grove, Ut.-based KLAS Research, told Healthcare Innovation Senior Contributing Editor David Raths that “There are not many players of the caliber of Cerner in healthcare, so if Oracle really wants to get deep in healthcare, this is the move to make.” Gale noted that “Cerner does have a great base of clients, but their growth path is a little bit of a question mark. They've been losing market share. The growth path isn't running the same play they have been, which is to just keep selling more and more,” he added. “Maybe they thought Oracle could help open up opportunities, including internationally. Cerner has a lot of data. Oracle has strength in analytics, so that could be a good fit, too,” he said.

Gale said he’s already spoken to some Cerner customers about the deal. “The fact that Oracle is not a healthcare company creates some nervousness in the hearts of these executives,” he said. Thinking about the history of some of the acquisitions in healthcare, where bigger behemoths bought a healthcare company, the track record is not great, Gale added. “One customer I spoke to who was more enthusiastic was from one of the world's biggest health centers, and he said they like to work with the biggest companies because they feel like they can do some unique things creatively together, but most health systems probably aren't thinking like that.” Oracle historically has not had a high-touch approach with its customers. “It will be interesting to see if Oracle allows Cerner to take a much more high-touch approach than they have with most of their other solutions,” Gale said.

Meanwhile, as The Wall Street Journal’s Aaron Tilley wrote on Monday afternoon, “The deal extends Oracle co-founder Larry Ellison’s longstanding willingness to buy his way into new markets. Mr. Ellison built Oracle into a major power in business software in part through a long list of acquisitions over the decades. Last year Oracle and a group of other companies tried to buy the U.S. operations of video-sharing app TikTok, which would have given Oracle’s cloud business a foothold in social media. That deal didn’t happen. But, like the Cerner acquisition, it demonstrated Mr. Ellison’s desire to elevate Oracle in the fast-growing, cloud-computing business where the company has long lagged behind other tech companies including Amazon.com Inc., Microsoft Corp. , and Alphabet Inc.’s GOOG -0.28% Google, analysts said.”

Tilley added that “The Cerner deal, discussions for which were first reported last week by The Wall Street Journal, gives Oracle a major presence in an industry that is one of the top drivers of growth for cloud computing. Mr. Ellison said earlier this month that healthcare is one of the key focus areas for his company, telling analysts that it was “on par with banking in terms of the importance to our future.”

Other business journalists also noted the cloud connection. TechCrunch’s Ron Miller wrote on Monday morning that “With this deal, Oracle moves in a major way into the healthcare vertical, a growing market, and one that should help bolster Oracle’s fledgling cloud infrastructure business, which is languishing in the single digits, according to Synergy Research.

Miller quoted Holger Mueller, an analyst at Constellation Research, who told him that “It’s a smart move by Oracle. It cements Oracle technology even deeper into healthcare, and brings a lot of current and especially future work load to Oracle Cloud. Not to mention that Oracle is buying into the largest and fastest-growing vertical industry.”

Investor’s Business Daily’s Brian Deagon reported on Monday afternoon that “Oracle stock dropped 5.2%, closing at 91.64 on the stock market today. Cerner stock edged up 0.8% to 90.49.” He also quoted Jefferies analyst Brent Thill, who, he reported, wrote in a note to clients, using Cerner’s and Oracle’s stock market abbreviations, that "We think that acquiring CERN would allow ORCL to gain a much larger foothold in the health care industry. From a strategic perspective, CERN would bring a massive health records data set to ORCL and allow ORCL to further expand on the apps business side, while CERN stands to benefit from ORCL's broad suite of front and back-office apps to help consolidate its software systems and make a deeper push into the health care industry.” And, Deagon wrote, “Thill has a hold rating on Oracle stock and price target of 95.”

Tweets from industry leaders focused on different possibilities. Rasu Shrestha M.D., executive vice president, chief strategy and transformation officer at the Charlotte-based Atrium Health, tweeted on Monday afternoon, “So what is the end game for @Oracle's $28.3 Billion acquisition of @Cerner? When @dtfeinberg joined as CEO just 4 months ago, it was to bolster ‘...a strategy based on #bigdata, #populationhealth management, and #consumerism -- and away from the legacy health records business,’” Dr. Shrestha wrote.

Mike McSherry, CEO of the Seattle-based Xealth, posted a tweet thread on Monday. He wrote, “Congrats @Cerner on @Oracle deal. Lots of thoughts: 1) First off - Cerner is Investor and resells @xealthinc 2) Oracle distant 4th in cloud after AWS, Azure, GC...this gives huge healthcare growth opp 3) Cerner's DOD/VA contract is huge strategic play for Oracle  4) Cerner already spends lots of $'s on Oracle services ...revenue preservation for Oracle 5) Cerner spends lots of cloud $'s with AWS...presume this will migrate to Oracle Cloud 6) Crazy Athena (~$1.2b rev) valued at $17b..Cerner (~$5b rev) only valued $28b. 7) Oracle is the master or ERP m&a and consolidation.  However, ERP does not equal EMR.  I'm guessing Oracle will need to retain Cerner's healthcare vertical expertise and staff to continue to grow/penetrate healthcare industry 8) Cerner #1 EMR global, though #2 in US 9) Can't wait to see what '22 M&A deals look like:  -Will Goog/Amazon buy into enterprise HC? -Will MSFT sit still on Nuance or buy other assets? -Will more big tech come into HC or will HC incumbents consolidate amongst themselves? -RPM/Device fragmentation seems ripe for M&A”

But the John Moore, founder and managing partner at the Boston-based Chilmark Research, tweeted that on Sunday evening that “CNBC reporting that ORCL will announce acq of CERN Mon 12/20  Not a big fan of this deal as I believe CERN clients would have been better served if Cerner stayed independent or was acq by MSFT or SFDC or even AMZN. Se la vie.”

And Elizabeth McCalley, A Dallas-based outsourced service provider industry portfolio executive at Salesforce, tweeted on Dec. 16 after the Wall Street Journal had alerted the industry to the advancement of merger talks between Oracle and Cerner, “Oh geez…Cerner is the very smart one in this scenario. Buying an EMR is like buying a claims system circa 2010.”

Over the past year, the consensus price target for Cerner shares (Ticker: CERN) had risen to $85 and change from about $78. But the number of analysts recommending clients buy the stock had fallen by half to five, according to MarketBeat. Still, there had been signs of optimism that the Street was beginning to buy into Feinberg’s ability to lift the company’s performance: This summer, both Jeff Garro at Piper Sandler and Richard Close at Canaccord Genuity upgraded their ratings to ‘buy’ or their firm’s equivalent.

Oracle and Cerner executives are targeting a deal close at some point next year and need certain regulatory approvals. Word of their deal comes about eight months after Microsoft Corp. executives said they planned to pay nearly $20 billion for artificial intelligence and speech recognition company Nuance Communications Inc. That deal received U.S. antitrust regulators’ approval in June but the United Kingdom’s Competition and Markets Authority earlier this month said it is looking into whether the business combination could be expected to reduce competition in that country.

Geert De Lombaerde and Janette Wider contributed reporting to this article.

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