Oracle will pay $9.50 per share in cash for Sun, or $5.6 billion net of Sun's cash and debt, according to Oracle. The move follows Oracle's purchases of a raft of companies in the last few years, including Siebel, PeopleSoft and BEA Systems.

Sun shares rose by $2.41 to $9.10 in trading about a an hour after the market opened, while Oracle shares declined by $1.03 to $18.03. Shares of the buying company in big mergers and acquisitions often sink at first as investors debate the relative merits of laying out large amounts of cash for the acquisition.

The deal comes after Sun reportedly walked away from an offer from IBM a few weeks ago. Though there were rumors Oracle might purchase Sun, it has never before had a hardware or server OS business, a market in which a significant amount of Sun's assets are tied, so the deal seemed unlikely. However, Sun's Solaris long has been a successful platform for Oracle's database business.

The two companies also have areas of common interest in their support for Java software, one of the only areas where the companies' product lines overlap. Sun has an open-source Java application server called Glassfish that Oracle likely will hold onto, although the fate of Sun's other commercial Java software, the Java Enterprise System (JES), is unknown.

Oracle also had overlap in this area when it purchased BEA, but BEA WebLogic had significant installed base, and Oracle kept the product alive. Sun's installed base for JES is smaller, so Oracle may choose not to hold onto it.

The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems. 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.

Indeed, on a conference call Monday, Oracle CEO Larry Ellison said Java and Solaris were the two main reasons Oracle purchased Sun, a move that is in line with Oracle's acquisition strategy to buy companies with "market-leading products."

Calling Java "the single most important software asset we have ever acquired," he said Oracle's Java-based middleware business, bolstered first by the BEA acquisition and now by the purchase of Sun, is on track to become as large as Oracle's flagship database business. Oracle's Fusion middleware is based on Java.

“The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems,” said 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 also considers Solaris "by far the best Unix technology available in the market," which is why more Oracle databases run on that OS than any other, Ellison said. He said Oracle's enterprise customers running both products will be able to experience new benefits by technical integration of the products.

"We will be able to tightly integrate the Oracle database to some of the unique high-end features of Solaris, engineering them to work together and for the first time to deliver complete, integrated computer systems -- database to disk -- optimized for high performance, improved reliability, enhanced security, easier management and a lower total cost of ownership," Ellison said.

Sun Chairman Scott McNealy, who has shared a stage with Ellison on numerous occasions in the companies' more than 20-year partnership, said Sun and Oracle share many common interests that will make the union a symbiotic one for customers.

"From day one Sun has believed in openness and innovation," he said. "We both believe in the value of R&D, openness, standards, community [and] delivering a complete solution. ... Today marks the next big step in that effort."

Despite his optimism, however, the deal is undoubtedly a personal blow for McNealy, who came up alongside Ellison as a maverick of the technology industry. For years, the two led their companies as the more outspoken of Silicon Valley's executives, shooting barbs at their common enemy Microsoft and even at each other from time to time. Giving up a company he co-founded to Ellison could not have been an easy decision for McNealy.

Ellison said that Oracle tends to integrate acquired companies very quickly into the existing organization, and will do the same with Sun once the deal closes. The deal is subject to regulatory and shareholder approval.

Oracle said the Sun deal should bring the company more revenue in the first year than the company planned for its acquisitions of BEA Systems, PeopleSoft and Siebel combined. Sun should contribute $1.5 billion to Oracle's non-GAAP operating profit in the first year, a number that will increase to more than $2 billion in the second year, the company said.

For Sun, the deal will bring an end to CEO Jonathan Schwartz's efforts to turn the struggling company around. Sun's sales have been declining since their peak during the dot-com boom, as customers turned away from its pricey Unix servers in favor of x86 systems. Sun's share price has also fallen sharply.

Efforts to attract new customers with open-source software, and Sun's belated decision to enter the x86 market, have not paid off fast enough to give it the boost it needs.

With Sun on board, Oracle now will have to figure out how to navigate the server OS and hardware business. In addition to supporting Solaris for many years, Oracle also supports its software on Linux. Though Sun's hardware does not have the reach that its former suitor IBM's does, the deal gives Oracle a combined hardware/software business model more akin to IBM's, with which it now competes in the database market.