While it has been a wild ride on the markets this week, not all U.S. stocks took hits to their share price this week. Shares of Hyperion Solutions Corp. (HYSL) moved from $43.06 to $51.65 (or a gain of nearly 20%) this week over news that software developer giant Oracle (ORCL) will be acquiring it. The deal is worth a total of $3.3 billion, with shareholders to receive $52.00 per share. Hyperion Solutions' specialty is its business software that allows executives to monitor and manage various aspects of the company (also known as business intelligence software). By acquiring Hyperion, Oracle is making another step towards diversifying its product offering from its original core business of database software.
While most of Oracle's revenues are still the result of its database software, the amount of growth provided by its core product line is starting to taper off. As a result of this, the company could have either implemented a strategy of concentrating on developing software in new areas where high rates of growth are feasible, or invoke a strategy of acquiring companies that have good product lines that will continue to add to Oracle's bottom line. Oracle has followed the strategy that most companies follow at this point in their life cycle, and is busy making acquisitions.
Case in point, this latest purchase marks one of over 20 acquisitions that Oracle has made in the last few years. Typically, acquiring an existing business allows a company to capitalize upon the good name of the brand they are taking over and at the same time grow their existing customer base. However, this deal involving Hyperion has yielded yet another benefit. It appears that over half of the users that use business intelligence software from SAP AG (SAP), one of Oracle's major rivals, also use Hyperion's software as well. This means that with a little bit of careful planning, Oracle may be able to persuade these users to fully switch over to Oracle-related products.
The obvious loser of this week is the U.S. stock market as a whole. More specifically, the S&P 500 Index, Dow Jones Industrial Average and the Nasdaq 100 Index were all met with the largest single digit losses since the first trading day following the market closures prompted by the September 11, 2001 terrorist attacks. Overall, the losses in market value incurred on Tuesday alone by some estimates totaled $632 billion ,with the S&P 500 losing $452 billion in market value.
The S&P 500 Index's ETF (SPY) fell from $145.83 to $138.92 (or a decline of 4.7%), The Dow Jones Industrial Average's ETF (DIA) fell from $126.86 to $121.17 (or a decline of 4.4%) and the Nasdaq 100 Index's ETF (QQQQ) dropped from $45.48 to $42.48 (or a decline of 6.5%).
The catalysts for the falls in the American markets started with the 9% drop in the Shanghai stock market that happened earlier in the week (interestingly, the Shanghai stock market had just hit a record high just a day before) in conjunction with consequent declines in the European markets and shaky consumer confidence amid fears that the U.S. economy may finally be turning the corner towards a recession.
This incident shows how speculation can create an avalanche of action which can have widespread effects upon the markets. One of the major reasons behind the domino effect of declines in the major global markets is the fear that the 9% drop in the Shanghai stock market was a sign that China's bull market has finally ending and that a bear market was starting to emerge. Many argue that this fear had no basis, because in reality it appears that the large decline was due to institutional investors locking in their profits in the Chinese markets. Furthermore, half of the losses in Shanghai were nullified as institutional investors were heavily in the buying mood, just the very next day.