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.

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation

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