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Sun begs IBM to come back and talk

Why can't you commit?

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Updated If IBM would only commit a little more to the deal, Sun is keen to resume takeover talks again, according to Bloomberg.

It is citing two people close to the talks, which ended on April 5th. At that point IBM withdrew an offer for Sun valued at around $6.85bn or aproximately $9.40 per Sun share, after Sun terminated exclusive negotiations with IBM.

According to variously reported comments from undisclosed sources, a characteristic feature of these never-formally-admitted IBM-Sun talks, Sun wanted a much firmer commitment from IBM to complete the takeover in the face of potential anti-trust objections. A combined IBM-Sun business would dominate the server market with a near 50 per cent share, slightly more if just Unix servers are considered, and this might set anti-trust alarm bells ringing.

When Sun didn't get this assurance from IBM it walked away. If Sun indeed wanted firmer guarantees from IBM that it would pursue the deal, it indicates that Sun has nowhere else to go, both Cisco and HP having ruled themselves out of any Sun takeover deal.

However, by this afternoon, CNBC was reporting that IBM was no longer interested in a deal, precisely because of the scrutiny it would likely attract.

Other reports said IBM objected to termination pay arrangements for Sun founder and chairman Scott McNealy and CEO Jonathan Schwartz'. These were said to be worth three times more than their annual pay, or a cool $3m for the pony tailed one.

It was also reported that a Schwartz faction was in favour of the tabled IBM deal while a McNealy one wasn't. Schwartz did vote with the rest of Sun's board to walk away, however. Another report said Sun couldn't provide a satisfactory valuation of its software assets to IBM, and yet another one said recent active investor in Sun, Southeastern Asset Management, would lose money on its investment at IBM's supposed offer price.

This all looks like we're having to work out the shape of an elephant from leaked microscopic views of bits of it. Now we have what may be another careful leak saying Sun would be happy to talk some more, if IBM would just make a stronger commitment to finishing the deal. If true, that would indicate Sun's board is now willing to accept a lower offer price and confirm Sun is in a bind with only one exit, the big blue one. Are we looking at $6bn or even less now?

As ever, both IBM and Sun refused to comment. Sun shares peaked at $8.89 when speculation on the talks was at its height on March 18th, up from a low point of $3.51 in January. They are now trading at $6.13, giving it a market capitalisation of $4.57bn. ®

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