IBM Acquisition of Sun Appears Off, Reports SayBy Lawrence Walsh | Posted 2009-04-05 Email Print
IBM's reported pursuit of Sun Microsystems in an acquisition deal valued at $7 billion appears dead in the water. The Wall Street Journal reports that negotiations are off as a result of an undefined impasse.
The marriage of IBM and Sun Microsystems appears dead in the water, as reports in the Wall Street Journal and other media outlets say the two sides have reached an impasse over the purchase price.
While neither side has acknowledged or confirmed the acquisition talks, IBM has reportedly been pursuing a purchase of Sun for more than $7 billion, which would be more than 100 percent of Sun’s stock trading value when the talks started in mid-March.
Last week, Sun completed its massive reorganization with the layoff of 1,500 employees, mostly from direct sales and marketing departments. Sources told eWEEK and Channel Insider reported that the reorganization would put greater emphasis on Sun’s channel partners for revenue, and was designed to mirror IBM’s business partner organization. The idea, the sources said, was to smooth the integration of the two companies.
IBM’s acquisition of Sun would give Big Blue a significant boost in its server market share. It currently holds a 33 percent share of the overall server market, leading rival Hewlett-Packard by 3 points. Bringing Sun into the fold would give IBM a 10 percent gain in overall server market share and a 65 percent share of the high-end Unix server market.
Sources have indicated the acquisition announcement would come this week. However, other reports indicated that the deal was stalling because of concerns of triggering regulatory reviews and Sun’s demands for IBM guarantees for compensation should the deal fall apart.
Sun was reportedly concerned that it would succumb to the same fate as Yahoo when Microsoft backed out of its $42 billion acquisition last year. When that happened, Yahoo's stock plummeted to its current all-time low, which forced the resignation of CEO Jerry Yang.
Since the deal publicly surfaced, Yahoo’s stock has gone on a rollercoaster ride, starting at around $4.70 a share to a high of close to $8.55 per share. Sun, which trades under the symbol "JAVA" on NASDAQ, closed Friday at $8.49. Some analysts speculated that Sun’s stock value and market capitalization would collapse if the acquisition failed.
Sun reportedly wants IBM to give it guarantees that it will battle through any regulatory hurdles that threaten to derail the sale. Some analysts have speculated that the IBM-Sun marriage would trigger antitrust reviews, since it would give IBM control over nearly half of the server market and nearly absolute control over the tape storage market, which both companies dominate.
Some analysts and industry observers have indicated that the IBM-Sun deal will never happen because it simply doesn’t make sense. Many reports have talked about the server powerhouse that the combined companies would make, but others have cited that there is tremendous overlap in technologies and products, and the only thing IBM would get from the acquisition is market share.
Some analysts have indicated that better suitors for Sun would have been Cisco Systems, which recently entered the server market and has ambitions for storage; Dell, which needs to enhance its server and storage business; and Apple, which some believe needs to find a position in the business technology market.