Original URL: http://www.theregister.co.uk/2009/05/12/suns_three_suitors/

Sun proxy details its dating game

Three suitors and wacky questions

By Timothy Prickett Morgan

Posted in Business, 12th May 2009 22:57 GMT

You've been curious about the back story when Sun Microsystems, as Intel chief executive officer Paul Otellini succinctly put it, "shopped around the Valley and around the world."

And now, thanks to the Securities and Exchange Commission and the preliminary merger proxy statement Sun has to file by law as part of Oracle's proposed acquisition, the melodrama is there for you to read.

The proxy statement, which you can read here, shows that Sun had three companies chasing it. Well, one. Two of them were pursued by Sun at the advice of its board - one of them being Oracle, and the other not yet known by name.

The company that started off the whole mess was Party A, which has to be IBM based on the story line, whose chief executive officer (that would be Sam Palmisano), approached Sun's president and chief executive officer, Jonathan Schwartz, and another Sun board member about a "possible business combination transaction."

Between November 6 and December 19, Sun's management team and lawyers, Wilson Sonsini Goodrich & Rosati, had discussions with IBM and its lawyers to talk over the options. At this time, Sun's board decided it would be best to shop around a bit, and approached the management of Party B, which could be anyone but which was probably Hewlett-Packard but could be Fujitsu or even Cisco Systems.

All Sun says is that during the first quarter of 2009, its management and advisors were approached by "other parties" but with the exception of Parties A and B and Oracle, nothing evolved from those talks. My guess is that Party B is Hewlett-Packard, and that the other parties were Cisco and Fujitsu.

Anyway, on December 19, Party A (IBM, let's stop pretending here) and Sun entered into a confidentiality agreement (which apparently held for three months until the Wall Street Journal blew the covers off the talks because someone's tongue was wagging somewhere on March 18).

On January 28, IBM made a preliminary offer of between $8.40 and $8.70 per share, all cash, for Sun, and on the following day, Sun engaged Credit Suisse to act as its financial advisor and Sun had a regularly scheduled board meeting, where it talked over the deal.

Schwartz met with the CEO at Party B on February 12 and six days later, Sun entered into a confidentiality agreement with that company and Party B got on with the due diligence. IBM offered a revised proposal to Sun on February 20 for $10 a share in cash to acquire the company, and this deal was conditioned upon Sun having exclusive negotiations. Whoops.

Sun's board held meetings to talk over Party A and Party B three times between February 22 and 26, and on February 23, Sun's chairman, Scott McNealy, reached out to Oracle's chief executive officer, Larry Ellison, about making a "possible strategic transaction" with Sun. During this time, Party B was encouraged to make an offer for Sun, but declined, and Oracle kept its mouth shut. And so, on February 26, it took the exclusivity agreement with IBM and began negotiating the $10 per share deal.

Sun negotiated with IBM from February 26 through April 4, putting together a draft definitive agreement and going over issues relating to antitrust regulations and commitment levels on the part of IBM to see the deal through.

On March 12, Oracle sent a letter to Sun's board suggesting that Oracle buy certain (and unspecified) software assets from Sun, take a minority interest in the company, and doing some strategic relationships to help shore up Sun. Sun's board talked about this offer in a meeting on March 16, but decided to keep working on the IBM deal instead and did not respond to Oracle's offer. Whoops.

On March 18, the Journal story broke about IBM wanting to shell out $10 to $11 per share for Sun, right smack dab on the opening day of the CommunityOne East event hosted by Sun. While all the talk about the IBM-Sun deal swirled around, IBM took a hard look at its options and decided to drop its offer to $9.40 a share and made some other conditions to the deal (which presumably annoyed Sun and may, as El Reg has reported, have had to do with golden parachutes for McNealy and Schwartz).

On April 4, IBM squeezed Sun a little harder, offering one deal for $9.40 a share with a higher level of commitment to see the deal through than another, which was worth $9.10 a share and had no such commitments. Sun's board shot down both deals, terminated the exclusivity deal with IBM, and weighed its options. Its options at this point pretty much being Oracle and Party B, which got rolling with its due diligence on April 9 and Oracle entered into a confidentiality agreement the following day and called out its own bean counters and lawyers.

Sun and IBM continued talk after a cooling off period, and IBM told Sun that if it could not agree to a deal by April 20, that was it. IBM kept its two deals on the table, and Sun didn't accept either price, but kept talking.

Credit Suisse stepped in on April 16 and gave Oracle and Party B until April 17 to make an offer. That day, Party B bowed out of any deal and Oracle said it would make an offer of $9.50 per share.

The next day, as the lawyers were all talking, Schwartz called Safra Catz, co-president of Oracle, and asked for more money. This was not a very good bargaining position, with IBM offering $9.10 a share and Party B moving on, and it is hard to imagine that she didn't laugh.

Catz merely said, according to the proxy statement, that a higher price "would not be acceptable to Oracle." Or, necessary, given the other deal on the table and the lack of other deals or options.

On April 19, Sun's board asked IBM what its price was for Sun, and Big Blue said $9.10 per share. IBM's lawyers sent over the deal, Sun's board tossed it on the table and that afternoon, it approved the Oracle deal and broke off talks with Big Blue.

Dance over. And now a Delaware corporation called Soda Acquisition, owned by Oracle, is doing the deal. Sun will be a wholly owned subsidiary of Oracle when the deal is done, according to the proxy. How long it maintains its separate identity remains to be seen. ®