Sun CEO and President, Jonathan Schwartz and Intel CEO, Paul Otellini, at an announcement of a strategic alliance centered on Intel's endorsement of the Solaris Operating System (OS).

Software database giant Oracle has agreed  a $7.4 billion in cash deal to purchase Sun Microsystems, the two companies said today in a joint statement today. Oracle moved in after talks between Sun and IBM collapsed.

Oracle will pay a premium of $2.81 a share, or 42%, over Sun's closing price of $6.69 a share on Friday. Oracle said the deal is valued at $5.6 billion net of Sun's cash and debt. Oracle, which has bought a series of software firms including PeopleSoft, said the deal will add to earnings in the first full year after closing.

Oracle gets access to Sun’s Java programming language and Solaris operating system software, which works with its database programs. The world's second biggest software company also gains entry into the server-computer market, allowing it to challenge IBM in that business and sell more products for corporate data rooms that run networks and Web sites.

Sun says there are about 6 million Java developers and the software has been installed on 800 million desktop computers and it powers 2.1 billion mobile devices.

"The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems,”said Oracle CEO and co-founder Larry Ellison.“Oracle will be the only company that can engineer an integrated system – applications to disk – where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.”

Oracle said there are substantial long-term strategic customer advantages to Oracle owning two key Sun software assets: Java and Solaris. Java is one of the computer industry’s best-known brands and most widely deployed technologies, and it is the most important software Oracle has ever acquired. Oracle Fusion Middleware, Oracle’s fastest growing business, is built on top of Sun’s Java language and software. Oracle can now ensure continued innovation and investment in Java technology for the benefit of customers and the Java community.

The Sun Solaris operating system is the leading platform for the Oracle database, Oracle’s largest business, and has been for a long time. With the acquisition of Sun, Oracle can optimize the Oracle database for some of the unique, high-end features of Solaris. Oracle is as committed as ever to Linux and other open platforms and will continue to support and enhance our strong industry partnerships.

“Oracle and Sun have been industry pioneers and close partners for more than 20 years,” said Sun Chairman Scott McNealy.“This combination is a natural evolution of our relationship and will be an industry-defining event.”

“This is a fantastic day for Sun’s customers, developers, partners and employees across the globe, joining forces with the global leader in enterprise software to drive innovation and value across every aspect of the technology marketplace,” said Jonathan Schwartz, Sun’s CEO, “From the Java platform touching nearly every business system on earth, powering billions of consumers on mobile handsets and consumer electronics, to the convergence of storage, networking and computing driven by the Solaris operating system and Sun’s SPARC and x64 systems. Together with Oracle, we’ll drive the innovation pipeline to create compelling value to our customer base and the marketplace.”