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Sun Stocks Sink Fast in Overseas Trading

Sun Microsystems stocks trading on the Frankfurt exchange in Germany fell nearly 25 percent this morning, a harbinger of the consequences the one-time Silicon Valley high-flier faces as a result of its failed talks to sell to IBM. Yesterday, reports surfaced that IBM withdrew from talks to acquire Sun in a deal many valued at […]

Written By: Lawrence Walsh

Apr 6, 2009

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Sun Microsystems stocks trading on the Frankfurt
exchange in Germany
fell nearly 25 percent this morning, a harbinger of the consequences the
one-time Silicon Valley high-flier faces as a result of
its failed talks to sell to IBM.

Yesterday, reports surfaced that IBM
withdrew from talks to acquire Sun in a deal many valued at $7 billion. While
neither Sun nor IBM have commented on the
talks or the reported impasse, sources say a price dispute broke the deal.

IBM is said to have initially offered Sun
$9.55 per share, which was nearly 100 premium over the $4.97 per share Sun’s
stock was trading at when the acquisition talks began. As the talks lingered
over the last three weeks, Sun’s stock rose to a high of $8.55; it closed
Friday trading on Wall Street at $8.49. IBM
reportedly lowered its offer to $9.50 per share.

While price apparently is the issue that broke the acquisition negotiations,
Sun was reportedly concerned over what would happen if IBM
backed out of the deal and so sought concessions and assurances. Sun was
reportedly concerned that its stock would face a similar fate to that of Yahoo,
which saw its shares’ market value plummet following the failed merger talks
with Microsoft last year.

The concerns of IBM backing out were
reportedly based on regulatory obstacles that might have stood in the way of
the deal. IBM’s acquisition of Sun would
elevate its share of the server market to nearly 44 percent, far outpacing
rival Hewlett-Packard, which holds 30 percent of the server market. Of potentially
greater concern is that the marriage of the two companies would give IBM
nearly 65 percent of the high-end Unix market, which some speculated would
trigger antitrust oversight.

Beyond the server market, IBM and Sun are
dominant players in tape storage technology. Some analysts have speculated that
IBM might be compelled to spin off Sun’s
tape storage business to satisfy regulators.

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.

Sun Stocks Sink Fast in Overseas Trading

Lawrence Walsh

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