Our rationale as to why Walmart should acquire Oracle is fairly simple.
- WMT’s strategy: Walmart is pushing to become an “omnichannel” (brick & mortar plus online) retailer. Walmart has rolled out various online offerings most of which are the result of acquisitions.
- Data proliferation drives demand for storage and advanced analytics: Online retail generates reams of customer data. Storing and analyzing the data is paramount to success.
- Drive proprietary innovation, remove the fox from the hen house. Rather than become beholden to Microsoft Azure, Google Cloud Platform or AWS (a direct competitor) why not own the cloud/embedded AI capability outright? Oracle’s cloud offering is as effective as other offerings from a data storage and data security standpoint (perhaps better on the security side). Everyone lags Google from an AI standpoint, but it’s not as though Oracle lacks AI capability entirely.
- Margin accretive deal: The deal would be margin accretive to Walmart’s razor-thin margins. It would also increase the company’s free cash flow generation capability and create more flexibility to drive innovation.
- Geographic diversity: The proposed deal would provide Walmart with a larger footprint on the Technology-forward west coast of the United States.
- Succession: This proposed deal would resolve the succession issue for Oracle founder Larry Ellison.
Thus, why not acquire Oracle, bring the database/server and core AI capability in-house and build the decision-support infrastructure and application software on top of Oracle’s stack? Culture clash you say? I don’t disagree. However, without this type of transformative deal, Oracle will forever be relegated to fourth place – at best – in the cloud wars. Walmart will remain disadvantaged from a Technical capability standpoint as compared to Amazon. Further, neither Walmart shares (tkr: WMT) nor Oracle shares (tkr: ORCL), have set the market on fire over the past few years.