IBM-Sun takeover – Strategy or Speculation

News feed:
IBM’s talks to acquire computer hardware maker Sun Microsystems $7bn (£4.7bn) takeover have broken down, media reports say.The talks were said to be in their final stages in recent days and it is not clear whether the collapse in negotiations is final.
News that the tie-up was in trouble sent Sun shares lower, to close 23% down, while IBM shares slipped 0.65%. IBM reportedly offered about $9.50 per share, near double the value of Sun’s shares when the deal was first reported last month.
Company sources told the Associated Press news agency that the two sides were haggling over price and also over whether IBM would go ahead with the deal if competition issues emerged.
Was this takeover ever meant to be? If yes, then what could be its possible implications on open source development. Is this another case of merchandising, licensing and franchising stuff that’s ‘meant to be free’? Or was their some other reason behind that, as stated by IBM (server hardware production).
Conversely, if this takeover was never meant to be, who do you think benefited the most from this speculative prices surge/downfall in Sun’s shares the past 4 weeks.
Answers welcome with rationale. No speculations here, folks 🙂
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  • Zohaib,
    Was this takeover meant to be? It depends.
    Both sides have their spin doctors and rumor mills.
    The reality is only going to be known by a handful and our speculations can be pretty accurate.
    If you look at the deal, IBM would hold the reigns of the Java world. Both IBM and Sun are two of the largest influences on the Java Community and the Java Community Process (JCP). Because of this, you could be sure that the EU regulatory agencies would put up some serious roadblocks that could stall the deal. This would be very expensive and if the deal were to break up because of regulatory concerns, it would leave Sun in a very bad situation.
    A stalled deal leads to FUD and this will have a negative impact on sales. Sun would end up walking away looking like damaged goods. IBM did not want to commit to Sun because they didn’t want the scrutiny that goes along with an anti-trust investigation.
    But the deal was real. Sun has some interesting IP and of course it would mean IBM would essentially control the JCP. The biggest reason that hasn’t been said or covered was that IBM wanted Sun for its customer base. Sun play well in IBM’s ‘white space’. That is, IBM needs access to these large customers so that it can continue to grow. IBM wanted to leverage Sun’s hardware to cross sell / up sell the customer base on IBM’s Services and possibly software. So the net net is that IBM will still retain the hardware revenue stream and potentially grow the business by selling additional services.
    So I don’t think that the deal was a sham just to raise Sun’s stock prices. That would be illegal.
    Currently the share price is still north of $6.00 a share. This is a bump up from their $4.00 range so the Sun shareholder who bought when Sun was sub $4.00 are the real winners. (They’re the ones who bet that Sun was a takeover target.)
    Of course the other issue of exclusivity in the deal was interesting. Cisco could have been a suitor but they backed out. Oracle? They were reportedly only interested in the Software side of the shop.

  • It is very hard to answer without speculation.
    My two cents:
    I think it would benefit IBM for various strategic reasons, some of them being:
    – IBM gets the steady server market that Sun would provide
    – IBM gets the entire Java stack ( with the mobile biz so strongly related to it )
    – IBM gets MySQL ( already has DB2 , improving their offer )
    – IBM gets Solaris ( broader hardware base and SCO lawsuit free ! )
    – IBM gets Sun’s Virtualization and Cloud Computing portfolios.
    Is all this speculation? yes it is… but I guess we will have to wait to see the facts 😉
    Regarding your question about whether this is “another case of merchandising, licensing and franchising stuff that’s ‘meant to be free'”… I guess you’re pulling a long rope there my friend.
    Personally I think OS benefits from companies like Sun or IBM (on their OS projects). Combining creativity and the sponsor or such companies has created great success stories (not always that much profitable) like MySQL. On the other hand, things that are ‘meant to be free’ also need licenses 😉

  • The people that know will most definitely not be commenting here, so it will be speculation with or without rationale.
    It seems obvious to me that IBM was interested.The negotiations were very close to being completed and the negotiations were made public. IBM is a serious company – they would not do this unless they were truly interested.
    Note that I would not be surprised if the negotiations were some way restarted. I don’t think SUN’s stockholders want to see another “Yahoo”.
    I don’t see any open source angle. Both IBM and SUN are supporters of open source. IBM has been so a bit longer than SUN.

  • It is too soon to say what is happening. Based on what I’ve read and how these things go, this has to do with some personal issues of some of the founders. The fact is, Sun is in trouble and, in this economy, selling to IBM is the best profit opportunity for the stock holders.
    Unless another suitor appears, and there is no indication that there is one, the alternative is for Sun to drastically restructure or fail. That would be worse.
    Let’s not forget, Java is not free. In fact the JVM and language specification are held quite tightly by Sun. I think part of Sun’s problem has been and is in this chapter that Scott McNealy has believed his own hype.
    Prediction: IBM will absorb Sun.

  • IBM and Sun acquisition talks broke down.
    The negotiations between world’s No. 1 and No. 4 makers of server computers IBM and SUN Microsystems respectively broke down.
    According to The Wall Street Journal IBM has withdraw its offer for Sun Microsystems, its main rival servers supplier, after Sun has sent a notice to IBM terminating its right to exclusive negotiations. Two companies are reported to have been in merger talks for a couple weeks, but they had reportedly been haggling over a price. Eventually last week Sun’s board has rejected a formal offer from IBM, considering the offer price too low and declaring concerns that the offer gave IBM too much authority to walk away from the deal.
    IBM is believed to have made an initial offer for Sun worth $9.55 per share, but subsequently cut that to $9.40, after its lawyers pored over the details. While Sun shares had risen to $8.49 on last week, from $4.97 on March 17, a day before talks between the two technology companies were first reported. But Failure to secure a deal will raise questions over the future of Sun. By entering into negotiations, its board has potentially signalled a lack of faith in its ability to operate as a standalone company. Shares of Sun Microsystems fall 23 percent on Monday after the company rejected rival IBM’s $7 billion offer.

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