Fitch Ratings lowered its outlook for Sun Microsystems Inc. to "evolving" from "positive" on Tuesday after European regulators objected to Oracle Corp.'s plans to take over the company.
Fitch said it would likely knock Sun's rating down by two notches if the deal falls apart. The company has a "BBB-" rating, one step above non-investment, or "junk" grade.
The European Commission is worried that Oracle's $7.4 billion takeover bid could harm competition in the database market.
Fitch noted the commission's formal objection "could ultimately preclude Oracle Corp. from consummating its proposed acquisition," which it said would be terrible news for Sun.
The company is struggling as it loses market share to IBM Corp. and Hewlett-Packard Co. It lost $120 million in the most recent quarter.
If it clears regulatory hoops, Sun's outlook would return to "Positive," Fitch said. The deal has already been cleared in the U.S.
Sun shares fell 7 cents to $8.17 in afternoon trading.