Bigger Indigo - shades of AT&T's NCR grab

Comment Rumor has it that IBM will acquire Sun Microsystems on Friday morning.

I am not by any means suggesting I have the kind of hard information that the Wall Street Journal seems to have been able to get its hands on - probably from people within Sun or IBM who don't want to see the deal go through. I am hearing things fourth hand, but from people better connected than I am and who I trust. That doesn't make it any more real, mind you.

Anyway, one rumor I heard is that the deal will be announced on Friday morning, if the companies can come to terms. Oddly enough, I'm also hearing that the acquisition will be tucked up underneath IBM's Software Group, with the Systems and Technology Group playing second fiddle. That seems pretty odd to me, considering that Sun is largely still a server and operating system maker with a Java application development business bolted onto the side. But this whole Bigger Indigo deal being a bit crazy anyway, I wouldn't be surprised if this last bit was also true even though it makes but little sense.

Neither IBM nor Sun ever confirmed the original reports in the Journal or the subsequent ones about the lawyers at Big Blue going over Sun's contracts and licensing deals with fine-toothed combs. And when I asked an IBM spokesperson late yesterday about this latest rumor - that the deal would happen on Friday - I was given the obligatory no comment. Sun has similarly gone quiet, and it even delayed its "Nehalem EP" server announcements, which were expected on Monday, until April 14. Sun's stock price, still hovering above $8 a share, indicates that Wall Street hasn't totally lost hope in an acquisition, and IBM is above $100 a pop in New York this morning, which means Wall Street doesn't seem to mind if IBM does the deal.

Without any confirmation of talks, much less an announced deal, there is another more ominous possibility. What if IBM doesn't do the deal? And what if IBM was just window shopping all along, so it could get a look at all the goodies inside of Sun? IBM not doing the deal could be just as detrimental to Sun as doing the deal will surely be.

The more I think about this deal, the more it looks like AT&T buying NCR to me (which AT&T eventually spat back out, you will remember), unless IBM spins off the Sparc business to Fujitsu. (Which would only mean that IBM does the AT&T-NCR two step in one step).

The Bigger Indigo acquisition does not look or feel anything like Hewlett-Packard buying Compaq back in 2001, when HP needed a better services business and a volume PC and server business to match its Unix server and printer businesses. IBM doesn't need to own Java to use Java - it needs another operating system like it needs a hole in its bottom line, and even at $8 a share, or around $6bn with no premium over today's market capitalization for Sun, that is a lot of money to eliminate a competitor.

It seems unlikely that the Antitrust Division of the Justice Department would make much noise about Bigger Indigo, but the deal does leave us with two choices: IBM or HP. You can have your computers in blue or gray. Pick one.

There might be cheaper ways of destroying Sun - but perhaps there are none quicker.

Bootnote: After we went to press with this commentary, the Journal put out a report from the ever-popular "people familiar with the matter" that Sun has agreed to a lower sale price for itself, perhaps in the range of $9 to $10 per share. That compares to the $10 to $11 per share Sun was willing to accept a few weeks ago, according to the Journal story that broke the news of the IBM acquisition.

The latest Journal article said Sun is worried that the acquisition could drag on for months as antitrust concerns, particularly in the market for large servers based on Unix, are addressed by regulators. Sun wants some sort of lock in, apparently, so IBM stands by its engagement commitments, all the way down the aisle to marriage. ®