Report: Sun rejects IBM offer, IBM withdraws bid

Updated at 7:13 p.m. PDT, with comment from Sun Microsystems and market share information for both companies.

Sun Microsystems rejected IBM's formal buyout offer on Saturday, calling the bid insufficient and putting future deal talks at risk, according to a report Sunday in The Wall Street Journal.

IBM reportedly made a formal bid of $9.40 a share, or less, for Sun, which in turn rejected the offer and terminated Big Blue's right to exclusive merger talks, the Journal reported. IBM, in turn, withdrew its buyout offer.

In addition to holding a belief that the bid was too low, Sun apparently was also concerned that the terms of the offer provided IBM with too much flexibility in being able to walk away from the deal, the Journal reported.

Prior to reports that the companies were in merger talks, Sun Microsystems had closed at $4.97 a share and had been trading below $5 a share for a number of months.

Whether Sun would entertain resuming merger talks if IBM sweetened the deal was not clear, the Journal noted.

A Sun Microsystems spokeswoman noted the company does not comment on rumors or speculation. IBM representatives did not return calls seeking comment.

Sun's reported concerns over structuring a deal that would allow IBM to easily walk away from a merger agreement should not be taken likely, say antitrust attorneys and industry analysts.

"It's obvious this deal will get a second request (for more information) from regulators. And once it does, it'll take six months, at a minimum, to a year before a decision is reached," said one attorney who specializes in antitrust matters. "Sun can be twisting in the wind for a year."

A second request for information signals to the parties antitrust regulators are formally investigating the transaction to decide whether to challenge it in court.

IBM holds nearly 32 percent of the worldwide server market, based on 2008 factory revenues, and Sun 10.1 percent, according to IDC. Combined, the two companies would account for nearly 42.1 percent of the overall $53.3 billion server market.

And within the high-end Unix server market, IBM held a 37.2 percent slice of the market last year and Sun 28.1 percent, representing a combined 65.3 percent should a merger go through, according to IDC. Unix servers, while on the decline, still accounted for the majority of high-end, non-x86 server systems, last year, according to IDC.

And if bets were made on whether antitrust regulators would allow IBM and Sun to merge, the antitrust attorney said he would "bet against it."

On the storage front, in which the industry generated $27.7 billion in revenues last year, IBM ranked third with 16.2 percent of the market, while Sun ranked a distant No.5 with 6.1 percent of the market, according to IDC. A combination of the companies could push IBM to the No. 1 spot in storage, surpassing Hewlett Packard with its 19.6 percent market share.

When it comes to storage technology using tape drives, which amounted to $987 million in revenues for the first three quarters last year, IBM held 66.6 percent of the market and Sun a 33.4 percent share slice, according to IDC. Combined, the two companies would hold 100 percent of the tape market.

Disagreements over setting the price of a break-up fee, a penalty the suitor or target company would have to pay to undo a merger agreement, are not new and have been known to occasionally derail merger talks, the attorney noted.

[alegr]

Sun should merge with Yahoo. There is something similar about them.

[Mr. Dee]

Linux: Die SUN! Die!
Solaris: Linux, do me a favor...shutup!

[Commander_Spock]

Wow! That was just too........ bad to hear about those Tuxedo Clad Birds (Linux OSes).

Re: "OS/2 leads readers' favorite OSs of yesteryear":

http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9130758

[dudemanguysondog]

what does this have to do with anything?

[lightningrob]

Not surprising, as it would represent too much of a defeat for Sun management team. But I doubt the company will be able to stay independent much longer.

[codynews]

So IBM offered 2x what Sun is worth, and Sun said "That's not enough".

Yeah, that is like Yahoo.

Fools.

[flickrz]

No. It is not. Yahoo! is profitable whereas SUN has been loosing money every quarter. That is a very big difference.

If Sun goes away, java and all current undergoing opensource project sponsored by Sun (JDK,Glassfish,netbeans,JSF,JAX-WS RI etc.. ) will not be the same. IBM's only intentions in respect to these project would be to phase them out in favor of their own long seasoned equivalent products.

[sharmajunior]

Sun and Yahoo are going down. Their shares should be packaged in like the insurance securities and then should be sent down a hill to tumble. They wouldn't know what hit'em. Then they would know that it was better to have made that deal earlier.

[flickrz]

Have you ever even looked as financial position of those two companies? Yahoo is growing (albeit slowly compare to google) and is profitable whereas SUN isn't growing revenues and is loosing money for last several quarters. I guess you don't even know how to read balance sheet (do you know what a balance sheet is?).

[dennisl59]

This will go down in tech history, like the Yahoo Deal, as the most idiotic, moronic and foolish decisions EVER made by a company screwing what's left of their shareholders and endusers.

Prediction: Sun/Java goes to $.10 a share.

Add Scott McNealy and his gang of egomanics to the Hall of Shame.

Thank You.

[ewelch]

Time for Apple to whip out a bit of their $28 billion in cash and join the Enterprise.

Heh.

As if. (Too bad.)

[pokiri]

Sun will come back stronger. It is good for Sun that this deal didn't proceed. I believe Sun management didn't want to sell , but those SW... activists wanted company to be sold ?

[digrappa]

Apple should buy Sun, which would likely give McNealy fits, but Apple would then have a legitimate presence in the corporate market they could use to grow even more. Not to mention it would be quite a reversal from the late nineties when Apple was in trouble. I like that ironic element most of all.

[rcardona2k]

Which side did all the leaking? I hope that eventually comes out. If it is IBM, they intentionally set out to hurt Sun.

[saltylaker]

Sun Microsystems has probably their greatest software lineup from anytime in their history: Solaris, Java, NetBeans, GlassFish, and MySQL. Frankly, I am rooting for their independence.

[Circumference_2_Diameter]

from WSJ :
"...Sun's board is split over whether to do the deal, with a faction led by Sun's chairman and co-founder, Scott McNealy, opposing the transaction and a group led by Chief Executive Jonathan Schwartz in favor, said two people familiar with the talks...."

Anyone read this blog ? http://blogs.sun.com/jonathan

Poor Sun employees, your CEO is either a lier or a spy. I would rather consider .... spy.
JS has been doing a fantastic job since CEO day 1, now the goal is almost achieved.

[mbenedict]

Typo: "concerns [that IBM could] easily walk away from a merger agreement should not be taken likely"

Probably should be: "not be taken lightly"

[gsigas]

I believe that company management should have no say whatsoever in buyout bids, it is purely a shareholder decision.

[jacobbatt09]

im a big fan of sum micros systems and i know they will continue to make great products like aznoe.com