Will Sun Set on Planned Merger ?

By The Associated Press
Published: April 7, 2009

SAN JOSE, Calif. — Without IBM Corp.’s $7 billion takeover offer, Sun Microsystems Inc., a Silicon Valley rebel known for independence, is possibly alone again. Unless a new suitor somehow emerges, Sun will have to overcome the wobbly finances that forced it to shop itself around.

Sun’s shares tumbled 23 percent Monday to close at $6.56, a day after talks between the corporate computing rivals fell apart.

The two sides had been nearing an agreement before the weekend. But Sun balked at IBM’s last price of $9.40 per share, which had come down from earlier offers but still was about double Sun’s stock price before word of the negotiations leaked last month.

Still a chance
Sun canceled IBM’s exclusive negotiating rights, and IBM withdrew its offer, people familiar with the situation told The Associated Press.
These people requested anonymity because they weren’t authorized to disclose details of the talks.

IBM and Sun might still end up together. Investors appear to be taking that prospect into account, as Sun’s stock hasn’t fallen all the way back to the $4 to $5 range it occupied before the acquisition discussions surfaced.

Even so, the public unraveling of the talks is an embarrassment for Sun, which has been dogged by billions in losses since the dot-com bubble burst in 2001

The breakdown could be a boon for IBM, which doesn’t need the deal as badly and now could demand an even cheaper price if Sun’s investors slam the company for rebuffing the offer.

Sun Chief Executive Jonathan Schwartz, whose peace offerings to former enemies such as IBM paved the way for the once-hard-to-imagine deal talks, could get caught in the fallout.

The situation is reminiscent of what happened last year to Yahoo Inc., which rejected a $47.5 billion takeover offer from Microsoft Corp. Yahoo shareholders howled about the squandered opportunity, and Yahoo co-founder Jerry Yang later stepped down as chief executive. Yahoo’s stock now trades for less than half the price Microsoft offered.

"Let’s hope that Sun doesn’t go down the same path as Yahoo,” said Rick Hanna, equity analyst with Morningstar Inc. "I hope this wasn’t a brinksmanship play by the company’s board, because there really are so few suitors for the company. A deal has to happen for Sun long term. I just can’t see them remaining independent.”

Analysts have been predicting Sun’s demise as a stand-alone company for years, but the recession sharpened the company’s problems. Sun already has cut thousands of jobs over the past few years and has about 33,500 employees now.

One hang-up in the talks with IBM has been the terms of a commitment from IBM that it will see the deal through even if antitrust regulators raise objections