Pride Trumps Good Sense in IBM-Sun Talks

By John Pallatto  |  Posted 2009-04-06 Print this article Print

News Analysis: Sun Microsystems has apparently spurned IBM's buyout offer, joining Yahoo in the runaway bride club. The question now is whether the IT systems company can find another suitor in Silicon Valley before being permanently relegated to business spinsterhood.

At first it looked like IBM pulled the plug on the deal by lowering its buyout offer and as a result giving Sun an offer it just had to refuse. But the news reports from Reuters, the Wall Street Journal and other news services presented conflicting views of the situation.

Reuters has reported that IBM offered as much as $9.55 a share for a total of $7 billion to acquire Sun. As the business day closed on April 3, the word was the IBM was going to announce an acquisition agreement on April 6.

Then Reuters reported on Saturday that IBM had cut its offer from to $9.50 from $9.55, but that two companies were still on track to announce a purchase agreement. Then Sunday afternoon the Wall Street Journal, Associated Press and Reuters reported that the buyout talks collapsed after Sun rejected IBM's offer of $9.40 a share. It's hard to say for sure what really happened because neither IBM nor Sun has confirmed publicly that the talks have ended or explained why they failed. In fact, they had declined to comment publicly about whether they were even talking.

Read more about why the IBM-Sun talks stalled here. 

It's hard to imagine that Sun and IBM would allow the talks to fail over a matter of 15 cents per share. What's a few million dollars more or less in a $7 billion buyout deal?

The latest report from the Wall Street Journal suggests the deal failed because of a conflict on Sun's board of directors, with a faction led by CEO Jonathan Schwartz favoring the deal and a faction lead by founder and Chairman Scott McNealy against it. The McNealy faction prevailed.

The decision immediately raises the issue of whether Schwartz will long remain as Sun CEO, since he apparently pushed for the buyout talks and favored the IBM deal. He may find that his position as Sun CEO is now untenable.

What seems more likely is that Sun-which reportedly has been shopping itself around since it reported a $2 billion loss in November 2008 and announced a massive corporate restructuring-hopes there are other ardent suitors waiting in the wings.

When word leaked out that IBM was courting Sun, rumors soon followed that Sun had rejected a joint offer from Hewlett-Packard and Oracle, which would have resulted in the two buyers dismembering Sun, with its hardware assets going to HP and the software going to Oracle.

But it hardly seems likely that Sun stalwarts would find the prospect of in effect getting sent to the IT rendering plant very attractive unless they were offered a lot more money.

Even Dell, a relative latecomer to the server market, was said to be in the running. But none of these options seems very attractive unless Sun is getting downright desperate.

John Pallatto John Pallatto is's Managing Editor News/West Coast. He directs eWEEK's news coverage in Silicon Valley and throughout the West Coast region. He has more than 35 years of experience as a professional journalist, which began as a report with the Hartford Courant daily newspaper in Connecticut. He was also a member of the founding staff of PC Week in March 1984. Pallatto was PC Week's West Coast bureau chief, a senior editor at Ziff Davis' Internet Computing magazine and the West Coast bureau chief at Internet World magazine.

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