Sun activist shareholder to get payday?
CNET News Poll
Update at 9:13 a.m. PDT, with IBM comment and Sun's stock price.
With Sun Microsystems reportedly in merger talks with IBM and its stock soaring as high as 83.7 percent in morning trading, Sun's largest shareholder may find its activist role is paying off.
Southeastern Asset Management, which holds a 22 percent stake, announced in October that it was seeking an active role in the company and would engage in talks with not only Sun's management but also third parties, in an effort to maximize shareholder value.
That was followed in December with an announcement that Southeastern would gain two seats on Sun's board of directors.
In landing two board seats, Southeastern's vice president and principal, Jason Dunn, noted:
Southeastern adding two directors to (Sun's) board further strengthens our conviction that Sun will take maximum advantage of all its opportunities for customers and for shareholders.
Shares of Sun jumped as high as $9.13 per share in morning trading, valuing the company in excess of $6.7 billion. But based on Tuesday's close, before news of reported merger talks surfaced, Sun closed at $4.97 a share with a market cap of $3.7 billion.
IBM is reportedly considering a cash deal of at least $6.5 billion, according to a report Wednesday in the The Wall Street Journal, which first reported the merger talks.
Sun's stock--the blue line here--slumped through 2007 and 2008, and through that time has been underperforming the broader markets.
Since October 2007, Sun's stock has headed southward and underperformed the broader markets. And in the fall, it dipped below $5 a share, further compounding its problems in attracting institutional investors.
For Southeastern, which has a reputation of wearing a velvet glove with the companies in its portfolio, the decision to take an activist role in Sun may ultimately pay off should the deal with IBM go through.
Southeastern and Sun were not immediately available for comment. IBM declined comment.
Dawn Kawamoto covers enterprise security and financial news relating to technology for CNET News. E-mail Dawn. 
On the hardware side, Rock chips would complement IBM's hardware and while hardware sales are down, its a cycle business. Sun hardware would also open the doors to 'white space' clients who typically shun IBM in the LUW (Linux/Unix/Windows) part of their business.
And thats the key. If IBM could convert these customers in to purchasing Sun hardware with IBM services and a combined software stack, IBM could recognize an ROI in the near future.
I would also expect to see Oracle consider bidding on Sun. While Oracle has stayed out of the hardware business, they would need it to stay competitive with IBM.
(Nice chart, BTW)...
- by ThisSunDontShine March 23, 2009 8:52 PM PDT
- Ms. Kawamoto,
- Like this Reply to this comment
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(3 Comments)Your article is misleading and innacurate starting with the article title and continuing with the detail provided.
I would interpret the phrase "get a payday" as suggesting that Southeastern would make a profit on their Sun investment and their shareholder activism. Unless a Sun acquisition occurs at a HUGE premium to the 3/23/2009 Sun closing price of $7.94, Southeastern will in fact LOSE money on this investment. A brief explanation:
Southeastern began acquiring Sun stock about a year ago when Sun stock was in the high teens. Sun has dropped precipitously since then, touching an intraday low of $2.60 of 11/24/08. Southeastern kept buying and buying.
The following was reported in Southeastern's SEC filings disclosing their 22.3% ownership in Sun:
# of shares acquired: 166,048,623
Cost of acquired shares: $2,144,337,495
So the average cost per share = $12.91
So at current levels, Southeastern is LOSING $826 MILLION on their 22.3% Sun ownership.
At the rumored $10.50/share level, Southeastern would STILL LOSE $401 MILLION on their Sun ownership.
I do not consider either of these results to constitute a "payday".
In fact, Southeastern needs Sun stock to increase in value nearly 63% from current levels JUST TO BREAK EVEN on their investment.
Southeastern will need much more than a velvet glove to achieve these results - they need a financially irresponsible suitor. I doubt that IBM fits this description.