Feeds

Sun shares sink as IBM deal breaks down

Board splits into Schwartz and McNealy factions

Boost IT visibility and business value

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. ®

Build a business case: developing custom apps

More from The Register

next story
6 Obvious Reasons Why Facebook Will Ban This Article (Thank God)
Clampdown on clickbait ... and El Reg is OK with this
No, thank you. I will not code for the Caliphate
Some assignments, even the Bongster decline must
Barnes & Noble: Swallow a Samsung Nook tablet, please ... pretty please
Novelslab finally on sale with ($199 - $20) price tag
Mozilla's 'Tiles' ads debut in new Firefox nightlies
You can try turning them off and on again
Banking apps: Handy, can grab all your money... and RIDDLED with coding flaws
Yep, that one place you'd hoped you wouldn't find 'em
Video of US journalist 'beheading' pulled from social media
Yanked footage featured British-accented attacker and US journo James Foley
Primetime precrime? Minority Report TV series 'being developed'
I have to know. I have to find out what happened to my life
Netflix swallows yet another bitter pill, inks peering deal with TWC
Net neutrality crusader once again pays up for priority access
prev story

Whitepapers

Top 10 endpoint backup mistakes
Avoid the ten endpoint backup mistakes to ensure that your critical corporate data is protected and end user productivity is improved.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Backing up distributed data
Eliminating the redundant use of bandwidth and storage capacity and application consolidation in the modern data center.
The essential guide to IT transformation
ServiceNow discusses three IT transformations that can help CIOs automate IT services to transform IT and the enterprise
Next gen security for virtualised datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.