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The merger of IBM and Sun Microsystems appears to be coming apart, according to several reports. Over the weekend, Big Blue reduced its $7 billion offer, the Sun board rejected IBM’s formal takeover proposal, and IBM then withdrew the bid completely.
The Wall Street Journal first reported the trouble Saturday, saying that a faction led by chairman and co-founder Scott McNealy opposed the deal, while one led by CEO Johnathan Schwartz was in favor. “While the price of IBM’s offer remained
unclear — some placed it at $9.10 a share, others at $9.40 — some
people familiar with the talks say price wasn’t the biggest issue,” the WSJ reported.
The New York Times also reports that this deal is toast — but that another deal may rise from the ashes:
Whether the IBM decision amounts to a negotiating tactic to get
agreement on the final sticking points is unclear. Though the offer is
off the table for now, the two sides could resume bargaining if Sun’s
share price drops from its $8.49 close on Friday and major investors
pressure the company to come to an agreement.
The main point of contention, the Journal reported, may be over the wording of the formal proposal itself. Sun asserts it gives IBM too much latitude to walk away from the deal, while IBM contends it would be fully committing to it.
It’s impossible to know whether this is full-throttled negotiation or actual fissures at Sun that were exposed in the final stages of talks. Comparisons to another would-be tie-up of significant tech companies, Microsoft and Yahoo, don’t exactly match up data point for data point: Yahoo vigorously fought takeover, and Sun embraced it. But in the end, miscalculations scuttled a deal both companies subsequently said they would have done on terms that were on the table at the time.
It isn’t clear what Sun’s options absent IBM interest would be. Sun shares rallied last month to match the 100% premium Big Blue’s offer implied — and dropped about 24 percent on the open Monday. No other suitor is knows to exist for the once-iconic Silicon Valley company. And, having put itself in play, customers may be skittish about its prospects and commitment if the merger doesn’t go through.
But Om Malik, who covered Sun for years as a reporter, has one idea: Consider going private.
The four Sun co-founders — Scott McNealy, Bill Joy, Vinod Khosla and
Andy Bechtolsheim — swing enough clout in the Valley to help put
together a rescue package. Given how easily Palm has been able to raise
additional funding, I don’t think Sun will have trouble raising the
capital. Bad as it is — down 10.7 percent from fiscal 2008 — Sun will
post revenues of just over $12 billion. And it still has a few billion
dollars in cash.
Source: John C Abell
