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.


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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.