Business Tech

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.

After weeks of negotiations, IBM reportedly is eyeing a $9.55-per-share buyout for Sun Microsystems, according to a report in The Wall Street Journal.

Such a price would value the deal at roughly $7 billion and offer Sun investors nearly double the price of the stock before reports surfaced earlier this month that the parties are in buyout talks.

A report in The New York Times, meanwhile, notes the parties are discussing a purchase price of $9.50 a share.

In either case, Sun's investors haven't seen the hardware maker's stock trade at those levels since August. Last spring, Sun was trading at a 52-week high of $16.37 a share.

The Journal notes that while the deal talks have progressed toward their final stages, there is no guarantee the deal will ultimately go through.

Sun reportedly is asking IBM to assure the company that it will vigorously pursue the merger despite any regulatory scrutiny, in exchange for Sun agreeing to a lower buyout price than the parties initially discussed.

Sun was up 1.34 percent to $8.32 a share in early morning trading, despite the broader markets edging downward.

IBM has reportedly cut its purchase price for Sun Microsystems to a range of $9 to $10 a share. And Sun is apparently willing to accept the lower range providing IBM agrees to pursue the deal, even in the face of antitrust scrutiny, according to a report Thursday in The Wall Street Journal.

Previously, IBM was contemplating a buyout price of $10 to $11 a share, according to the Journal. Big Blue had recently been delving into Sun Microsystems' contracts for any possible conflicts, as part of its due diligence on the company.

Sun Microsystems stock spiked 6.25 percent to $8.50 a share on initial reports Thursday that IBM lowered its price and Sun was willing to accept it, but then Sun's shares tempered as more news filtered out that the deal was still under discussions and there was no guarantee it will ultimately go through.

Sun subsequently was up a mere 1.63 percent to $8.13 a share in intra-day trading Thursday.

Prior to reports last month that IBM was interested in buying Sun for approximately $6.5 billion, Sun Microsystems' shares had largely languished below $5 a share for the past five months.

Sun Microsystems shares soared Wednesday, as reports surfaced that the struggling hardware maker was in merger talks with IBM.

Sun ended the day up 78.9 percent to close at $8.89 a share. The last time Sun traded at such levels was back in September.

Although Sun's stock got a jolt as reports circulated that the workstation and storage company was in merger talks with IBM, it did not return it to its 52-week high levels of $16.72 a share.

Some analysts issued support for such a deal.

Jeff Goldberg, a senior analyst with financial research and consulting firm Celent, said in a statement:

The rumors that IBM is making a bid for Sun Microsystems might be causing waves, but after the storm, the market will find that the two companies align well in mission and technology.

Both Sun and IBM have a strong focus on creating industry standard platforms, with heavy investment in open source initiatives. Few companies of this size would be trusted to control such a large portion of the open source space, including Sun's recent acquisition of the open source database MySQL, though IBM has established the ability to maintain the interests of the open source community separately from their businesses.

IBM fell 1.03 percent to end the day at $91.95 a share, while the broader markets advanced.

Tech stocks soared Tuesday, as the broader markets surged ahead on news that Citigroup generated an operating profit for the first two months this year.

The Dow Jones Industrial Average soared 379.44 points to end the day up 5.80 percent at 6,926.49. And the Nasdaq climbed 89.64 points to close the session up 7 percent at 1,358.28.

Technology stocks also surged ahead, with the CNET Tech Index climbing 67.84 points to jump ahead by 7.35 percent to 990.66.

Within the tech sector, Adobe Systems jumped 10.37 percent to close at $18.52 a share. Research in Motion was not far behind, with a 10.53 percent gain to $38.96 a share, and Nokia climbed 10.84 percent to $9.71 a share.

Red ink flowed throughout the broader markets Thursday following unsettling news that General Motors auditors are casting doubt on the company's ability to survive..

The Dow Jones Industrial Average closed down 281.40 points, or 4 percent, to 6,594.44, a low it hasn't seen since 1997.

The Dow's decline has been rapid. Just four trading days ago it was in the 7,000 range. And just 13 trading days before that it was in the 8,000s, where it languished for months.

The Nasdaq closed down 54.15 points, or down 4 percent, to 1,200, and the CNET Tech Index dropped 27.34 points, or 2.76 percent, to close at 962.74.

A few tech companies managed to swim against the tide.

Leap Wireless stock rose 4.47 percent to $28.27 a share. The company announced its wholly owned subsidiary, Cricket Communications, struck a deal with Samsung Telecommunications America, in which Samsung's SCH-r211 bar-style phone would be available to customers using Cricket's unlimited wireless services.

And Chinese Internet search company Baidu jumped 2.66 percent to $161.51 a share, after a Citi Investment Research analyst upgraded the company to a "buy" from a "sell," according to an Associated Press report. The analyst upgraded the stock based on weekly improvements to traffic on its site since January, according to the report.

Networking gear maker Ciena saw its stock jump 11 percent to $5.93 a share during the regular trading session Thursday, after announcing it would cut 200 positions, or 9 percent of its workforce, and close its research and development facility in Massachusetts.

That news apparently pleased investors, despite the company also reporting a 26-percent revenue drop in the first quarter over year ago figures and a net loss of $24.8 million, compared with a net profit of $28.8 million, during the same period.

Adobe Systems was another company that posted share price gains, despite issuing a first-quarter warning after the markets closed Wednesday. The software maker said it would miss its earlier revenue forecasts, but expected to remain on target with its profit projections.

Shares of Adobe advanced 3.68 percent to $16.92 a share on Thursday.

With the Dow Jones Industrial Average falling below the psychological watermark of 7,000 on Monday, investors may be wondering how it all stacks up against the stock market crash of the Great Depression.

It's not looking good.

In the here and now, the Dow has dropped 52.5 percent since its high of 14,279.96 on Oct. 11, 2007, to its low point of 6,779.62 during intraday trading on Monday. (Update 1:16 p.m. PST: At Monday's close it was 6,763.29, a drop of nearly 300 points from the previous close.)

And in taking a similar period of a year and five months in the late 1920s, it's a case of deja vu.

The rate of decline is mimicking that of the Dow during the Great Depression.

Back on September 3, 1929, the Dow hit a high mark of 381.17. And over a similar length of time, it fell 54.7 percent to 172.36 on January 2, 1931.

"It's very troubling if you have a mirror image," said Phil Dow, market strategist for RBC Dain Rauscher & James.

Helping to drive the Dow lower on Monday were tech titans IBM, which dropped 3.17 percent to $89.10 a share, and Hewlett-Packard which fell 3.72 percent to $27.96. Intel gave up 2.43 percent to $12.43 a share, while Microsoft gave up 1.80 percent to fall to $15.86 a share during intraday trading.

If the Dow continues to follow the rate of decline that it endured during the Great Depression, investors would have another year and four months before hitting rock bottom. Back in July 1932, the Dow fell 89 percent to 42.22 from its high.

RBC's equity strategist Dow said he believes distinctions exist between the current market malaise and that of yesteryear.

"There is an opportunity for a globally orchestrated recovery," Dow said. "This won't be the end of capitalism. At some point we'll reach the bottom in the housing market, people will start buying cars again, and inventories will be rebuilt."

Several young companies anticipate initial public offerings this week, but there's not a single high-tech outfit among them.

There's one green-tech company however. Changing World Technologies, a company that converts waste into oil, is one of four IPOs poised to hit Wall Street this week. Changing World is scheduled to price its IPO as early as Wednesday and could raise as much as $42 million, if it prices on the high end of its $11 to $15 per share range.

Nonetheless, while the four Wall Street prospects offer some excitement to their investors, there's little reason to believe that with a recession in full swing many companies will line behind them.

"If these four companies are able to successfully complete their IPO and post positive returns for at least a couple weeks, it could motivate some of the companies that have recently filed (to go public). But I don't see the flood gates opening. It takes time for the IPO market to come back," said Paul Bard, research director of Renaissance Capital, an IPO research and investment management services company.

One of the most recent companies to file its paperwork to go public is OpenTable, an online dining reservations company. One investment banker, who requested anonymity, noted OpenTable faces a number of challenges if it moves forward with an IPO during this recessionary climate.

Fewer people are dining out, as the unemployment rate soared to 7.6 percent in January, presenting a potential slowdown in business, noted the investment banker. OpenTable's annual revenues of approximately $40 million in 2007 and the first nine months of 2008 are roughly half the level investors like to see in an IPO.

OpenTable, having just filed its paperwork, however, is still a number of months away from doing its road show to talk with potential investors and hammering out its IPO price. For many in OpenTable's situation, there's no rush: some companies have languished in the IPO pipeline for over half a year and longer.

Companies set to price their IPOs and begin trading this week, in addition to Changing World Technologies, include Mead Johnson Nutrition, an infant formula maker, and O'Gara Group, a homeland security defense company. Both Mead and O'Gara are scheduled to price their IPOs Tuesday after the markets close and begin trading Wednesday, according to their underwriters.

Madison Square Capital, a real estate investment trust, is expected to price its IPO as early as Wednesday night, as with Changing World, and begin trading on Thursday.

The disappearing IPO market
They'll be among the few in recent months to brave the public markets. The number of U.S. IPOs fell last year by 85.7 percent to 29 deals across all industry sectors, according to Thomson Reuters. Within the tech sector, that decline was even sharper--dropping a staggering 90 percent to four deals last year.

But don't entirely write off 2009 quite yet.

"If you can say there is any consensus at all, overall, it feels like investors believe the market will recover in the middle of the year and, typically, IPOs have been a lagging indicator to the overall market," said David Ludwig, managing director of equity markets for Goldman Sach's technology, media, and telecom practice. "Usually it takes a quarter or two for IPO market to become robust again once the market turns."

He noted, however, that given the IPO dry spell has lasted longer than in the past, there may be more companies willing to launch an IPO before the markets turn, especially if some of the first deals that test the market are well executed.

The last IPO to hit the markets was Grand Canyon Education, an Arizona-based online university that ended nearly a four-month IPO dought, when it debuted in late November at $12 a share. Grand Canyon's shares have outperformed the markets since its debut and the stock reached as high as $20.25 a share on Monday.

Who's on tap?
The performance of Grand Canyon apparently brightened the prospects for Bridgepoint Education, another online university, which filed its IPO paperwork with the Securities and Exchange Commission in late December. There's a reason both online schools appear to be doing well.

"Bridgepoint and Grand Canyon are educational companies and in a recession, when people are out of work, they go back to school," said Lise Buyer, founder of Class V Group, a firm that advises start-ups on preparing their companies to go public.

Other tech companies that recently filed IPO papers and remain in the IPO pipeline include Rosetta Stone, a foreign language training software maker, Emdeon, an automated payment system for the healthcare industry and Internet company OpenTable.

Although nearly two dozen companies have filed formal IPO paperwork since the market malaise in October, many are getting cold feet, Bard said. Since the start of the year, two companies have filed for an IPO while seven have withdrawn. And last year, 150 companies filed plans to go public but 184 companies withdrew, according to Renaissance Capital's IPOhome.com.

Within the technology sector, the companies that show the greater potential of offering up IPO candidates in this down market include software and services, which are viewed as defensive sub-sectors, said Cully Davis, managing director of Credit Suisse's technology practice for equity capital markets.

Meanwhile, other areas that appear to have gained some of that interest, investment bankers say, are security software, subscription-based services, network management, businesses around Netbooks, solid state drives, and clean tech.

Historically, tech and health care companies have been the lifeblood of the IPO market. Last year, tech and health care both ranked second with four IPOs each, behind the energy and power industry, which accounted for seven of the 29 deals that launched during the year. But in 2007, tech dished up the most IPOs with 40 of the 203 deals, followed by health care with 39 deals, according to Thomson Reuters.

What makes for a good IPO candidate?
Companies with lower capital costs will have an easier time posting a profit and, as a result, stand a better chance of launching an IPO, noted Buyer, who also cited annual revenues in excess of $100 million as another key item companies need to aim for.

Currently, the number of executives and venture capitalists seeking out bankers to take the companies public has substantially dropped, as they focus more on operating their businesses in the current economic and valuation environment, Ludwig said. But for those companies that are closer to being ready to access the markets, there's still interest.

There are caveats, investment bankers say. A couple years ago, tech investors wanted to latch onto IPOs that featured smaller companies with hyper-growth achieved through investing into sales and marketing, said Davis. But now, with their portfolios down, investors are less interested in hyper-growth companies and more focused on demonstrated profitability and realistic growth.

So when will the IPO market comes back again? Most likely, when investors decide a fresh face on Wall Street is a better bet than investing in an old one.

Shares of Dell and Qualcomm plunged by double digits Monday, as the Dow Jones Industrial Average went into a free-fall of nearly 700 points on news that the economy is officially in a recession.

The Dow closed down 679.95 points, or 7.7 percent, to end the day at 8,149.09, breaking a five-day run at posting gains.

Meanwhile, the tech-heavy Nasdaq fell further, declining 8.95 percent, or 137.50 points, to end at 1,398.07. And the CNET Tech Index dropped 7 percent to 1,014.20.

Despite reports that retailers fared better than expected over Black Friday, PC maker Dell saw its shares give up 10 percent during the regular trading session to close at $10.05 a share.

Shares of Qualcomm dropped nearly 10.8 percent to $29.96 a share at the session's close, and Comcast stumbled 10.9 percent to end the day at $15.45 a share.