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April 6, 2009

IBM-Sun talks end, deal is off: media reports

Companies fail to agree price

By CBR Staff Writer

Takeover talks have broken down between Sun Microsystems and IBM, the US news agencies are reporting this morning, with the two companies supposedly failing to agree on a price and other terms of an acquisition.

According to the Wall Street Journal, Sun’s board rejected a formal acquisition offer from IBM on Saturday, considering the offer price too low, which according to reports in The New York Times had reached $9.40 per share. 

Earlier, the market had been talking about a price in the $10-to-$11 range, which valued Sun at about $7 billion. Sun has a $2.7 billion hoard of cash and short-term investments.

As well as failing to agree a price, Sun had also been seeking assurances that IBM would not walk away from the deal even if it faced tough regulatory hurdles, the Times said. IBM considered that requirement too onerous.

With neither of the companies saying anything at all formally about the discussions, there is all sorts of speculation about Sun’s next steps. 

Sun’s negotiators have apparently terminated IBM’s exclusivity agreement, opening the company up to merger talks with other parties. But it is unclear whether another large vendor will step in and bid for Sun. 

Analysts have suggested Japanese server maker Fujistu could make a move, being the largest OEM of Sun’s Solaris operating system.

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Other potential buyers could include Hewlett-Packard or Cisco, which may be looking to expand their product lines to compete with IBM.

Dell has also been named as another, less credible suitor.

Whatever the eventual outcome, Sun finds itself in desperate straits, having lost nearly $1.9 billion in its last two quarters and so far this year cutting headcount by 2,800 employees as it tries to pare down overheads to balance its declining sales revenue.

 

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