Business Tech

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.

Update at 9:03 a.m. PST: Comments from Sun added.

Barclays Global Investors has signed aboard as a new shareholder in Sun Microsystems, taking a 3.18 percent stake in the struggling hardware maker, according to a U.S. Securities and Exchange Commission filing Thursday.

Sun, whose stock closed up 10.3 percent on Thursday, at $5.48, after heavy trading volume of 21.6 million shares, has seen its stock on the rise since January 30, when it traded at $4.16 a share.

(Credit: Yahoo Finance)

On the day before Sun's shares started their northward trek, the company's largest shareholder, Southeastern Asset Management, announced in an SEC filing that it was increasing its stake to 22.3 percent from 21.5 percent.

Also on that day, Sun named Rahul Merchant as a new director to its board, as part of an agreement with Southeastern, a large institutional investor.

Southeastern, which in October changed its status from passive investor to activist shareholder, is adding two new directors to Sun's board as part of that agreement. Merchant is the first of the two.

Merchant, a former chief information officer of Fannie Mae and former chief technology officer of Merrill Lynch, has more than 25 years of technology and operational management experience, according to Sun.

Although he comes with an extensive background in tech, executive recruiters say it's unlikely that he was selected to eventually replace Sun CEO Jonathan Schwartz, given that Merchant does not have any prior CEO experience. Rather, they note, he will provide strong technology insight for Sun's product road map.

Sun spokeswoman Karen Kahn noted that she had not heard of any discussions regarding Merchant as a Sun CEO and that the company would not comment on such speculation.

She noted that Southeastern submitted Merchant's name as a potential director and that he was already on Sun's radar, given that he has worked for companies that are Sun's customers. Both Sun and Southeastern are working on finding a second director, but there is no deadline for that to happen, Kahn said.

Last week, Sun reported fiscal second-quarter results that, despite beating Wall Street's expectations, included an 11 percent revenue drop and a loss of $209 million.

The company announced a major restructuring in November, and industry watchers say that may be its only hope, since it's unlikely the company will attract any buyers.

On Friday, longtime MySQL leader Marten Mickos announced that he is leaving Sun. Mickos follows MySQL co-founder Monty Widenius in announcing his resignation from the company.

Southeastern, meanwhile, is looking to use the flexibility it achieved with its changed status as an activist shareholder to hold discussions with Sun's management, as well as third parties, about opportunities to maximize the value of the company for all shareholders. And now Barclays Global is part of that group.

Barclays and Southeastern were not immediately available for comment.

SAN FRANCISCO--Oracle CEO Larry Ellison on Wednesday unveiled its first ever hardware product--a storage server with embedded software designed to work with the company's databases and be used in a grid. The Exadata programmable storage server aims to put database intelligence next to each drive.

The hardware roll-out, which was cooked up in a partnership with Hewlett-Packard, is aimed at the emerging problem of moving data from hard drives to database servers. The storage server took three years of development with HP and has been tested for about a year with key customers such as Google.

Ellison, speaking at Oracle's OpenWorld conference, said large databases are creating a fundamental problem: disk storage systems can't cope with data that has to be moved off of drives to database servers. He called it a "data bandwidth problem."

As data gets larger the slowdowns become more unbearable, at one terabyte you will notice data bandwidth slippage. At 10 terabytes, storage systems crawl. "At one terabyte the problem rears its ugly head and it gets worse every year," said Ellison.

Ellison outlined query processing and how Oracle's embedded software will handle query processing and other functions more efficiently. Oracle is hoping to sell its storage hardware as part of a grid. Drives will be searched in parallel also.

With the move, Oracle is copying Apple's model to a degree. Ellison is arguing that combined hardware and software efforts can be more effective. Instead of the consumer market, where Apple's secret sauce is tightly integrated in hardware and software for Macs and iPods, Oracle is coupling its database software with custom hardware to revamp data centers.

The Exadata storage server will be immediately available on Linux running on Intel, but Ellison noted other flavors for various platforms "are on the way." Oracle's move could be disruptive in the storage market and with players like EMC and IBM, since it can offer a joint-software hardware sale and leverage its HP's partnership. HP and Oracle are also rolling out an "Oracle database machine," designed for customers that don't want to configure the systems. The initial machine has 168 terabytes of disk data and 64 Intel cores.

Originally posted in ZDNet's Between the Lines.