Business Tech

The stakes have been raised yet again in the ongoing saga to acquire storage vendor Data Domain.

EMC announced Monday that it has upped its bid for Data Domain to $33.50 per share in cash, a deal worth about $2.1 billion. The company said its all-cash offer is "clearly superior" to NetApp's proposal of $30 per share in cash and stock.

In a letter to Data Domain Chairman Aneel Bhusri, EMC further strengthened its claim by stating that it has removed all deal-protection provisions from the offer as a way of maximizing value for Data Domain stockholders. The company urged the Data Domain board to do the same.

"It was questionable agreeing to deal protections in your initial agreement with NetApp when you knew of our interest in acquiring the company," EMC CEO Joe Tucci said in his letter to Bhusri. "There is no basis for continuing with them now."

Unlike NetApp, EMC's proposal isn't subject to any financing, due diligence, or regulatory contingencies. EMC will use existing cash to pay for the transaction.

EMC also said it's ready to close the deal within two weeks--almost a month sooner than NetApp. The $33.50-per-share offers expires at midnight EDT on July 17.

"Over the past several weeks we've received strong support from many Data Domain stockholders and customers, validating our belief that EMC is Data Domain's best choice," Tucci said in a statement. "With regulatory requirements now fulfilled, and in light of the clearly superior proposal we submitted to Data Domain's Board of Directors today, we expect Data Domain to sign our definitive agreement that will deliver superior value in cash to the Data Domain stockholders in as little as two weeks."

The skirmish to take over Data Domain has been playing out since May 20 with NetApp's original offer of $25 a share.

In early June, EMC jumped in and started a bidding war. In mid-June, two lawsuits were filed against Data Domain over its apparent reluctance to consider EMC's offer.

Speculation has also run rampant as to why EMC and NetApp are duking it out to win the hand of Data Domain.

Update at 7:25 a.m. PDT: Updated stock information added and headline updated.

Sun Microsystems shares soared more than 10 percent in premarket trading on Thursday, following a Bloomberg report that the struggling hardware maker was interested in resuming merger talks with IBM.

Sun climbed nearly 10.8 percent to $6.79 a share in premarket trading. But as the markets opened for regular trading, Sun's shares settled back to a more modest uptick of 2.77 percent to $6.30 a share. The broader markets were mixed.

Either way, its stock remains a ways off from the $9.27 it reached when reports first surfaced it was in buyout talks with IBM.

Sun is reportedly expressing interest in resuming talks with IBM, if Big Blue will raise assurances that it can and will close the deal, according to Bloomberg.

Antitrust experts have previously noted that a Sun and IBM merger would likely face intense scrutiny by U.S. and European regulators.

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

And if U.S. antitrust regulators, for example, express concerns over a deal, it could take six months to a year before they issue a final decision on whether to block a merger or let it go through, noted one antitrust attorney.

When companies are concerned their merger may ultimately face a tough time reaching closure, it's often reflected in a higher break-fee, noted the antitrust attorney.

"The price that a party demands for a break-up fee is known to kill deals," the attorney said.

That's because break-up fees can reach hundreds of millions of dollars.

Such was the case for prospective buyer EchoStar Communications back in 2002. The satellite TV company , to Hughes Electronics, after federal antitrust regulators said they would block the $25.6 billion merger.

Shares of Sun Microsystems suffered a staggering jolt Monday, following reports that the hardware maker rejected IBM's formal bid over the weekend and Big Blue has withdrawn its offer.

Sun's stock plummeted nearly 23 percent to $6.68 a share in premarket trading, following reports in The New York Times and The Wall Street Journal that the company rejected a formal buyout bid of $9.40 a share or less, and terminated an exclusive negotiating agreement, prompting IBM to withdraw its offer.

Sun's shares closed at $8.49 a share during the regular trading session on Friday.

(Credit: Yahoo Finance)

The storage and server maker's stock, while significantly down, has not yet touched the $4.97 a share level it was trading at before reports of the merger talks first surfaced in mid-March.

Sun is expected to face further shareholder pressure, in light of the reported breakdown in talks, Toni Sacconaghi, an analyst with Sanford C. Bernstein, stated in a research report Monday morning.

Sacconaghi noted that Sun's shares averaged $4.47 a share in the three months prior to reports of the merger talks, meaning that IBM's offer of $9.40 a share was a 110 percent premium.

He further stated:

Given the size of the premium and the fact that Sun's board has presided over a decline in the company's stock price over the last eight years from over $250/share to less than $5 prior to the acquisition talks being leaked, we believe that (Sun) is likely to face significant shareholder unrest, similar to what occurred when Yahoo declined Microsoft's offer. We expect Sun to issue a public statement detailing its rationale.

In the Yahoo-Microsoft merger talks last year, Yahoo, which had been trading in the high teens before the offer, rejected Microsoft's $33 a share buyout offer. That brought the wrath of one of Yahoo's large investors, Carl Icahn, who launched a proxy fight to attempt to unseat Yahoo's board of directors with his own slate. The two parties eventually reached a settlement, with Icahn and two of his representatives receiving seats on Yahoo's board.

Potential backlash from failed Sun-IBM negotiations could distract Sun's management and board by forcing them to justify their rejection rather than focusing on their struggling business, Sacconaghi noted.

The emergence of IBM-Sun buyout talks during the last two week of March, the end of Sun's fiscal third quarter, could end up affecting Sun's earnings because up to 40 percent of Sun's revenue is generated in the last two weeks of a quarter, Sacconaghi stated.

He also noted that customers are likely to have lingering concerns about Sun's future. And the prospects of Sun finding another buyer do not look bright, Sacconaghi said, adding these comments about the company, which trades under the stock ticker "JAVA":

While press reports suggest that the fall-out in discussions may be attributable to brinkmanship, we do think that a collapse in the talks has considerably weakened Sun's hand, as we see no other likely suitors, and a considerably higher potential for weakened (fiscal year third quarter) results.

According to press reports and our contacts, JAVA approached most logical buyers several months ago, with IBM being the most interested. While we believe that HP makes the most sense given its cost focus, physical proximity to JAVA (leading to more facile facilities consolidation), and more complementary product lines (HP is not as strong as IBM in Unix), the company appears fully focused on its acquisition of EDS, and a coincident deal to acquire Sun may prove to be overly distracting. JAVA's higher end server product portfolio would be very complementary to Dell, but we believe that an acquisition would be too pricey and represent too hearty an integration challenge for Dell.

While Sun's shares tanked on reports that merger talks with IBM have broken down, shares of IBM were down just 1.88 percent to $100.30 a share in premarket trading Monday.

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.

Sun (blue line) has consistently underperformed the Dow Jones (red) and Nasdaq (green) over the past 52 weeks.

(Credit: Yahoo Finance)

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.

(Credit: Yahoo Finance)

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.

With venture-backed companies failing to launch IPOs and with mergers and acquisitions lagging, liquidity for venture capitalists fell 65 percent in the first quarter, according to a report released Wednesday by Dow Jones VentureSource.

During the first quarter, $3.2 billion in liquidity was generated--a sharp contrast with $9.1 billion from a year ago and around the level seen in 2003. Because no initial public offerings took place in the first quarter, all of the $3.2 billion was generated from venture-backed companies selling themselves to the highest bidder.

Those two types of transactions are how VCs and investors in VC funds make their money back, after nursing those companies along with funding. The fewer of those types of transactions, the less money that VCs and their investors make.

Jessica Canning, VentureSource's global research director, said in a statement:

The most disturbing part about these new liquidity figures is that we've already reached the lows seen after the dot-com bust and we may not be at the bottom yet.

The IPO market is totally closed and there's just no clear indication right now that it will revive any time in the next quarter or two, even with 43 companies currently in (IPO) registration. It's a tough time to be a venture capitalist - and likely even tougher to be an investor in a venture fund.

With no venture-backed companies launching IPOs in the first quarter, all the activity fell to mergers and acquisitions. During the quarter, 68 mergers and acquisitions took place, substantially down from the 104 completed a year ago.

"This is due to the fact that many public technology companies are focused on conserving capital and the few that are buying venture-backed companies are doing so for lower prices," Canning said of the plunge.

The median price paid for a venture-backed company was $22.1 million in the first quarter, compared with $60 million a year ago, according to VentureSource. That's a steep 63 percent decline.

While the amount of money companies raise through a sale or IPO is down, venture capitalists may find comfort in that the time it takes for their portfolio companies to provide liquidity is shrinking.

In the first quarter, the median amount of time it took for portfolio companies to provide money back to their VCs was 4.7 years, compared with 6.8 years as was the case a year ago, according to VentureSource.

Sun Microsystems shares fell as low as about 13 percent Monday afternoon, steeper than the declines experienced by the broader markets. Investors, who are awaiting word on whether speculation of an IBM merger will become a reality, apparently were spooked, sending shares as low as $6.82 a share in afternoon trading.

(Credit: Yahoo Finance)

Shares of Sun lost 59 cents to close at $7.24, down about 7.5 percent, Monday.

The Dow Jones Industrial Average, meanwhile, fell as low as about 4 percent to 7,437.59 during intra-day trading and the Nasdaq dipped about 4 percent to 1,484.98. The Dow and Nasdaq were each down about 3 percent at the close.

While it's not immediately clear what may have spooked Sun investors, it is clear that IBM has an interest in migrating Sun's customers from Sun's SPARC architecture to IBM servers based on an x86 chip architecture, according to IBM BladeCenter Vice President Alex Yost, in a recent interview with Brooke Crothers, who writes CNET's Nanotech: The Circuits Blog.

Yost noted in that interview that a number of IBM customers are seeking to use Sun's Solaris operating system on x86-based servers or Linux on x86 servers.

In a more limited fashion, some of Big Blue's customers have a special requirement to use Solaris on Sun's SPARC architecture, Yost noted in that report.

Correction: This post previously misstated the location of Western Digital's headquarters.

Western Digital on Monday announced it has acquired solid-state drive maker SiliconSystems for $65 million.

The purchase will provide the current market leader in 2.5-inch drives with a way into the growing SSD market. Based in Aliso Viejo, Calif., SiliconSystems was established in 2002, and makes SSD products for communications, industrial, embedded systems, medical, military, and aerospace applications. SiliconSystems' product lineup includes SSDs with a variety of interfaces, including SATA, EIDE, PC Card, USB, and CF, in 2.5-inch, 1.8-inch, and CF.

The Lake Forest, Calif.-based Western Digital has a strong presence in the notebook industry with its 2.5-inch drives, but not the rapidly expanding Netbook segment. With the acquisition, Western Digital is now instantly a player in that market.

"SiliconSystems' intellectual property and technical expertise will significantly accelerate WD's solid-state drive development programs for the Netbook, client and enterprise markets," said Western Digital President and CEO John Coyne in a statement Monday.

SiliconSystems will be integrated into Western Digital right away. The new business will be named the WD Solid-State Storage business unit.