Sun shares sink as IBM deal breaks down
Board splits into Schwartz and McNealy factions
One quick way to make a few bucks this morning, if you happened to read the IT press over the weekend, is to short sell shares in Sun Microsystems, now that the rumoured acquisition of Sun by rival IBM seems to be unravelling.
Sun's shares were trading at $8.49 a pop on Friday at the market close, when it seemed likely that a deal would be announced imminently. This morning, as we go to press, the shares are down 22 per cent to $6.62 a pop, giving Sun a market capitalization of $6.32bn. They had opened as low as $6.45 a share when Wall Street woke up at 9am IBM's shares were off 1.3 per cent to $100.87, a slightly larger decline than the market at large, which was off just under one per cent according to the Dow Jones Industrial Average.
As we already reported, on Saturday IBM made a formal deal to Sun's board of directors to acquire its rival for something around $9.40 per share, or $6.85bn, an offer that Sun rejected.
The news was broken on Sunday by - who else? - the Wall Street Journal, which updated its story this morning, indicating that the Sun board has split into two factions. One is led by president and chief executive officer, Jonathan Schwartz, who wants to do the IBM deal at the offered price and conditions set by Big Blue. The other is led by Sun founder and chairman, Scott McNealy, who doesn't want to do this particular deal and, one imagines, doesn't want to sell all or any of Sun to any one for any reason.
Anyway, the updated Journal piece has not been able to nail down the price of the proposed deal from Saturday. Some sources say it was for $9.40 a share, while others said that it was $9.10. Either way, anything north of say $8.50 a share seems pretty reasonable, given Sun's inability to turn a profit and its prospects to compete in a tough economic environment against Hewlett-Packard and IBM. At the market close on March 17, the night before the rumours of the IBM acquisition broke, Sun was trading at $4.97 a share, giving it a market cap of $3.62bn. It is hard to argue that IBM is not paying a premium for Sun based on what the Street thinks the company is worth.
That said, the market would be better served by a Sun that stays in the game as an independent, but one that severely curtails its wickedly expensive research and development budget. Sun's R&D is far out of whack with its ability to support it and still make a profit. Sun doesn't have a product issue so much as a nerd issue, and it has always behaved as much like an academic IT institution as it has a vendor of hard and soft wares.
IBM used to do this, too, but stopped when it nearly went bust in the early 1990s. Sun needs to have the same epiphany, or face being busted up and sold off piecemeal by equity investors who could not care less about the future of anything except their own pockets, much less the state of an IT industry without Sun in it. ®
SUN lives on to invent another day...
The writer says, "Sun board has split into two factions. One is led by president and chief executive officer, Jonathan Schwartz, who wants to do the IBM deal... The other is led by Sun founder and chairman, Scott McNealy, who doesn't want to do this particular deal"
I like both Jonathan and Scott - for different reasons, however. My view of both of them now:
- Jonathan seems to be more interested open-sourcing everything, leaving SUN with hard assets to sell for cash, rather than in the long term viability of SUN.
- Scott seems to be more interested in SUN and their existing employees than Jonathan.
I don't think Jonathan will survive as CEO for long, after showing his colors.
They need a CEO who lives, eats, and breaths SUN hardware & software - all day long... eats their own dog food... so they can see what they are selling the customers... and quality control with feature enhancement propositions.
Schwartz must go. It's that simple
2000 laid off in September 2008, 6000 more laid off in 2009...
Rock microprocessor very late to market...KT microprocessor late to market...
No profit, No products...
Ever read Schwartz's blogs? The latest catchphrase to spill out of the pony-tailed narcissist
was "Free is the new black". Someone should tell him that the color of the ink on SUN's books is RED. Free products only work if you can find someone stupid enough to believe that they can monetize your Web 2.0 social networking crapware, something you yourself could not do. (Think Beebo, people).
It's a real shame that when "King" McNealy lost his bluster, he turned the company over to the court jester. At least McNealy made headlines, and in turn, profits.
re outsourcing @ bill stiller + AC
I was mumbling an MBA mantra - like all mantras, if you hear it enough, its effect exceeds all bounds of logic.
If an IT company outsources all of its IT, there isn't much left for the receivers, really.