IBM Lets Sun Set

Reports surfaced late this evening that computing giant IBM — which has been in talks for some time to buy Sun Microsystems — has pulled its $7 billion offer to buy the struggling company.

According to reports, IBM withdrew the offer after Sun's Board of Directors made "onerous" requests following IBM's decision to lower its offer for the firm. IBM initially offered $9.55 per share, but dropped that offer to $9.40 — less than a $1.00 premium on Sun's current stock price — due in part, it says, to the discovery that far more senior employees than originally expected are covered by "change of control" contracts. Such agreements cover senior executives — who often face replacement on acquisition — should the company be bought or otherwise come under the control of someone other than its Board.

Sun's Board, according to anonymous sources close to the negotiations, was worried about parts of the deal that would limit IBM's ability to pull out of the agreement — presumably, these concerns were the "onerous" guarantees which led to the breakdown. However, IBM's decision to walk — which terminates a contract between the two stipulating that no other deal would be pursued during the course of their talks — may prove a benefit for Sun, as it is now able to seek out deals with other companies, including IBM's rivals.

It is possible that IBM's decision is merely a tactical move, intended to scare Sun's Board into agreeing to the deal without any "onerous" provisos. If Sun seizes the opportunity to offer itself to IBM's arch-rivals, however, it may well be IBM that is scared into agreement, for fear of what its competitors would do should they acquire Sun instead. Indeed, the tactic may work doubly, initially motivating IBM's rivals to pursue a purchase — at a much better premium, of course — in the desire to prevent IBM from doing so, before forcing IBM back to the table.

Of course, it's also entirely possible that IBM has genuinely lost interest, and it could prove devastating to Sun if it turns out those IBM rivals never had any interest to begin with.


Justin Ryan is a Contributing Editor for Linux Journal.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

Apple better for Sun?

Silverlokk's picture

Truth to tell, while I have positive feelings about IBM and Sun individually, I didn't have those same feelings about a merged IBM-Sun or a Sun absorbed into IBM. Too many product line conflicts, no synergy. How about Apple, whose enterprise strategy is at best questionable? They have the cash, they need an enterprise player, and they're certainly much better at marketing than Sun is. Would be interesting though how McNeally would fit in all this -- Silicon Valley, let alone a merged company, isn't big enough for the two egos :) Sun might continue though as an independent subsidiary, carrying on with their day-to-day but responsible to the Apple board (w/c would of course include some of the current Sun board).

I just hope they don't call the merged company Starapple.

Sun Microsystems: Sic Transit Gloria Mondi

dave shields's picture

See my post , which also includes links to my three other posts on this topic.


Too bad for Sun. Good news for Microsoft.

Anonymous's picture

This is sad. IBM was the best option for Sun. If any other company buys them out, the fate of technologies like Java and Solaris will be much less certain.

White Paper
Linux Management with Red Hat Satellite: Measuring Business Impact and ROI

Linux has become a key foundation for supporting today's rapidly growing IT environments. Linux is being used to deploy business applications and databases, trading on its reputation as a low-cost operating environment. For many IT organizations, Linux is a mainstay for deploying Web servers and has evolved from handling basic file, print, and utility workloads to running mission-critical applications and databases, physically, virtually, and in the cloud. As Linux grows in importance in terms of value to the business, managing Linux environments to high standards of service quality — availability, security, and performance — becomes an essential requirement for business success.

Learn More

Sponsored by Red Hat

White Paper
Private PaaS for the Agile Enterprise

If you already use virtualized infrastructure, you are well on your way to leveraging the power of the cloud. Virtualization offers the promise of limitless resources, but how do you manage that scalability when your DevOps team doesn’t scale? In today’s hypercompetitive markets, fast results can make a difference between leading the pack vs. obsolescence. Organizations need more benefits from cloud computing than just raw resources. They need agility, flexibility, convenience, ROI, and control.

Stackato private Platform-as-a-Service technology from ActiveState extends your private cloud infrastructure by creating a private PaaS to provide on-demand availability, flexibility, control, and ultimately, faster time-to-market for your enterprise.

Learn More

Sponsored by ActiveState