IBM's talks to acquire Sun Microsystems have broken down according to media reports.
IBM reportedly offered around $9.50 per share, close to double the value of Sun's shares when the deal was first reported last month. This values Sun at $7bn and would be the largest deal in IBM’s history. The talks were said to be in their final stages and a high level of brinkmanship is common during late merger talks, so it is possible that the collapse in negotiations is not final. Whatever the truth however, news that the tie-up was in trouble sent Sun shares down 22% in morning trading, whilst IBM shares have dipped 2%.
Sun has struggled to turn a profit for some years as IT purchases have increasingly shifted from proprietary Unix hardware to commodity hardware running open source Unix variants such as Linux and Free BSD. In contrast IBM, itself in serious trouble in the 1990s, is a highly profitable organisation, making around $2.3-$2.8 billion a quarter over the last year. IBM’s interest is thought largely to focus on Sun’s software assets - Java, Solaris and MySQL.
The Wall Street Journal, which has been the source for much of the information in the public domain around the deal, is currently reporting that Sun’s board has split into two factions, with Scott McNealy opposing the transaction and Jonathan Schwartz in favour. If the talks have collapsed, Sun will find itself in the unenviable position of having to move rapidly to stabalise its stock price, as one interpretation of events for investors is that Schwartz does not believe the company can survive on its own. Indeed Paul Otellini, president and chief executive officer at Intel, has said on record that Sun was “shopped around the Valley and around the world in the last few months”. One probable consequence will be that both Schwartz and McNealy will be ousted from the company. Other possible suitors include Hewlett-Packard, Fujitsu, and Cisco Systems.
