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IBM's offer of $9.40 per share was met with resistance by Sun

The New York Times reports that Sun has been courted by potential buyers since last year. One of the big names that stepped up to possibly acquire Sun was IBM; IBM is one of the largest and most stable technology firms around.

DailyTech reported on March 18 that IBM and Sun were reportedly in talks about an IBM buyout. Last week, IBM was reportedly offering $9 to $10 per share for all shares of Sun stock. The New York Times (NYT) reports that IBM was offering $9.55 per share for Sun last week. Over the weekend, IBM reportedly shaved that offer to $9.40 per share according to a source close to the talks.

The $9.40 per share offer was presented to the Sun board and was met with resistance. The NYT reports that Sun's board didn’t reject the offer completely and wanted unspecified guarantees that the IBM reportedly considered "onerous" according to one of the sources.

IBM decided to cut the offer for Sun after an extensive legal review performed by over 100 lawyers IBM was using in the negotiations. A number of issues were reported to have been raised by the team of attorneys including possible antitrust concerns and contracts with IBM employees and competitors.

After being presented with the reduced offer, Sun's board announced that it would not abide by its exclusive negotiating agreement with IBM according to a second NYT source. After Sun made the announcement, IBM's board opted to withdraw the purchase offer.

One of the key issues according to sources was the change of control contract that Sun had in place with its executives, managers, and senior engineers. IBM reportedly felt that the payments to some senior employees were higher and extended more broadly across Sun than it had anticipated.

The Sun and IBM negotiations have the same flavor as the negotiations between Microsoft and Yahoo. Yahoo ultimately came out of the failed negotiations much worse than it went into them. Sun is now able to talk with other potential buyers including rivals to IBM like HP and Cisco.

Analyst A.M. Sacconaghi from the Sanford C. Bernstein research firm told the NYT, "For I.B.M., given its size, this was never a transformational deal. But in Sun’s case, it’s an extremely material event.” He continued saying, "This leaves Sun in a tough situation. Sun was on a path to selling itself, and this will inevitably raise questions in customers’ minds, no matter what Sun says, about its commitment to a go-it-alone strategy."

Analyst Peter Falvey says that, "Sun is now sort of damaged goods." Should Sun's stock price drop even further below what it is trading at now, IBM could come back with a further reduced offer. Shareholders could also pressure Sun to take the purchase offer as is.

Further compounding the current woes for Sun is that the third quarter figures set to be released soon, which are expected to show lackluster sales amid the global economic downturn.

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I doubt this is the end of it.
By TA152H on 4/6/2009 11:42:47 AM , Rating: 2
Well, I hope IBM doesn't buy Sun, but I don't know who else would, or who else makes more sense.

Microsoft buying Sun would be catastrophic, and would give them even more control of the industry, mainly Java. I can't help but think they'd want to get rid of Java, or at least minimize it, and this would cause a lot of problems.

Does HP want to own a processor at this point? I don't think so, but it's possible.

Dell makes no sense to me at all. They like to make cardboard boxes and put things in them, certainly they don't want to design processors or operating systems.

Sun by itself can't possibly survive now that people question how long they will be supporting SPARC. Since we all know they are trying to find a buyer, we also all have to question how long SPARC will be around. They wouldn't be looking for a buyer if they were healthy, so they can't go it alone (or, at minimum, they have created doubts here), and it's doubtful whoever buys Sun will continue to support SPARC very aggressively, and will probably kill it off over time.

When Sun entered the negotiations they diminished themselves to the point where they pretty much had to go forward with it. But they haven't. I don't know why they'd let this sort of thing get out to the press (maybe they couldn't prevent it), but once it did, their choices became much more limited.

They're already on a path they can't turn away from. I don't know what they're thinking at this point.

They have to make a deal. They have some good software assets, but after all this publicity, their value as a standalone company is seriously compromised.

RE: I doubt this is the end of it.
By rudy on 4/6/2009 12:10:02 PM , Rating: 2
I think if a company is good at the core while there will be a stock price roller coaster they can come back. But as said now I think we may be looking at another yahoo. Once confidence is shaken it will have some very undesirable effects for sun. Maybe IBM wants this and they will walk in with a lower offer after the stocks drop.

RE: I doubt this is the end of it.
By TA152H on 4/6/2009 2:55:47 PM , Rating: 3
I don't think it's the same situation as Yahoo.

You don't have a big investment with Yahoo if you visit their site, and even as an advertiser, it's relatively simple to move your ads to another site.

With Sun, you not only spend a lot on their hardware, but your personnel need to know Solaris (in most cases), and their hardware. On top of this, if you have any in house development, or plan it, that's a huge investment.

Yahoo wasn't seriously damaged by their affair with Microsoft. I don't think it really hurt their business. This has to hurt Sun, since people will doubt investing more in SPARC. Maybe their best bet is to just sell x86 servers, and be a software house. They still have Solaris, Java, MySQL, etc..., and a reasonably good support staff. I don't see how SPARC is viable at this point, but the rest probably still is.

By Ytsejamer1 on 4/6/2009 3:56:35 PM , Rating: 2
Sun has its advantages... you don't have to spend a lot of money with sun. Their x64 servers are just as good as any other "tier 1" vendor and cost half of what IBM or hp's crap does. If you want to run Solaris on it, feel free. We're a windows shop and their servers are great for our use.

I don't think this is the end of the whole story either...but for now, I'm pleased.

RE: I doubt this is the end of it.
By xti on 4/6/2009 12:10:38 PM , Rating: 3
With the yahoo thing fresh on everyone's minds, it just makes you wonder what sort of thing the Sun shareholders were thinking as soon as IBM chunked up the deuce. Like a kid expecting techmo bowl for xmas and instead they got dig dug 2(idc, my dad is still my hero).

This isn't going to end well for Sun, and its just disappointing when you think about how its all just coming down everywhere you look.

RE: I doubt this is the end of it.
By jconan on 4/6/2009 12:17:31 PM , Rating: 2
TI or fujitsu supported sparc???

RE: I doubt this is the end of it.
By Ammohunt on 4/6/2009 1:37:14 PM , Rating: 1
Does HP want to own a processor at this point? I don't think so, but it's possible.

They have their own processor its called Itanium. Besides HP would be better off going back to PA-RISC or to resurrect Alpha then to downgrade to SPARC architecture.

RE: I doubt this is the end of it.
By FITCamaro on 4/6/2009 1:38:30 PM , Rating: 3
Uh....Intel owns Itanium.

RE: I doubt this is the end of it.
By omnicronx on 4/6/2009 2:32:09 PM , Rating: 2
But the architecture was of HP design, and was developed by both Intel and HP. HP very much so owns a piece of Itanium.

RE: I doubt this is the end of it.
By TA152H on 4/6/2009 6:39:32 PM , Rating: 3
Actually, Intel completely owns Itanium, although HP was involved in the first iteration of it. In the sense that HP is using the Itanium as their HPC processor, they are committed to it, but that's not the same as owning it. They are probably the biggest supporter, but they have no rights to it. It's Intel's at this point, and Intel is the only developer of it.

If HP fancied having their own processor, they had a lot of good choices. Certainly SPARC is more valuable than their others, since there's a big installed base that hasn't been moved yet, and the instruction set of it isn't bad. Alpha is dead ( and somehow has become legendary, despite being overrated. The extremely expensive implementation of the instruction set made Alphas fast, when they were, not the instruction set), and PA-RISC is also pretty much in the same boat. SPARC is still very much alive, and very good at some situations, and the installed base hasn't been migrated. So, they might want to keep it, but I really doubt it. My guess is they'd move it to Itanium too, even though the Niagara 2 runs circles around it (and everything else) in certain applications. The Niagara 3 and Rock are supposed to be out soon too. So, maybe it's worth it to HP to keep this line if they buy it. I just don't know, really, if it makes sense to them. It's got possibilities, but might not be worth supporting yet another architecture. On the other hand, the Itanium is very good at IPC, and the Niagara is very good at running apps with lots of threads. Maybe they could market both lines successfully. Who knows?

By DeepBlue1975 on 4/6/2009 7:25:19 PM , Rating: 1
You reckless reader... He was talking about TITANIUM!!!

Ups. I remembered HP doesn't own that either. Gonna hide my head under the ground and play possum for a while...

By FITCamaro on 4/6/2009 12:43:00 PM , Rating: 1
The Yahoo of 2009?

RE: Sun
By kalak on 4/6/2009 2:25:37 PM , Rating: 2
The Yahoo of 2009?

You're so, so... smart !

Apple or Oracle
By hiscross on 4/6/2009 4:04:56 PM , Rating: 1
Should buy Sun. They also need to bring true hardware people and get rid the sales people screwing up a great hardware company. Look, even Steve Jobs understood in 1997 that the only way Apple was going to survive was to leverage Apple hardware because that is what people understood. As great, yes great, as MacOS X is (remember X started as NeXTSTEP/OPENSTEP) it can not sell on it;s own. Solaris is just as great and it needs Sun hardware to make it shine. IBM doesn't know what it wants to do. They'll sell you just about anything and then can't send you an engineer to make any of it work. Their DataPower units are a prime example. Oracle runs best on Sun hardware. Oracle has everything they need to kill off IBM and can cripple H-P (crappy HPUX stuff) with Sun hardware. Apple would show the enterprise their iPhone is better than RIM/WinMobile/Palm by having enterprise class systems they sell and support. Plus Sun engineers really like Apple engineers.

RE: Apple or Oracle
By tmouse on 4/7/2009 8:31:48 AM , Rating: 2
Apple has never been and probably never will be interested in developing their own computer hardware. Their strength has always been being able to see the utility that others develop and "sex it up" for public consumption.

As for "Sun engineers really like Apple engineers" that's just a roomer... (as JS would say) not that there is anything wrong with that. ; )

IBM Disses Sun
By hduser on 4/6/2009 6:31:26 PM , Rating: 2
Apparently, IBM doesn't think Sun is the center of the universe.

Being a *@#@@
By rvw83 on 4/7/2009 2:55:03 PM , Rating: 1
I hope Sun won't become a bitch of IBM because that sucks.

By oxymojoe on 4/6/09, Rating: -1
RE: Great....
By Kuroyama on 4/6/2009 12:25:55 PM , Rating: 5
Don't be an idiot. IBM and Sun are not bankrupt companies being saved from failure thanks to taxpayer money and unless you expect IBM to fail soon then the legislation is irrelevant to them. Read the article:

I.B.M. felt that the payments to senior employees were higher and extended more broadly across the company than it had anticipated.

This was a business decision. If IBM bought Sun then Sun (and hence IBM) would have to pay large sums of money to many employees. That is an added expense and so there should be no surprise if IBM would reduce their offer by a corresponding amount.

RE: Great....
By oxymojoe on 4/6/09, Rating: -1
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