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Sun Microsystems appears to be down to its last option as far as a white knight is concerned, but the problem is, that knight has gotten on its horse and ridden away.
I'm told from sources that Sun [JAVA
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Paul Sakuma / AP Sun Microsystems's headquarters in Santa Clara, California. |
] the day before yesterday in an effort to re-open negotiations that suddenly broke down a couple of weeks ago, and that Sun is willing to be far more flexible on price and terms than the stance it had taken then. I'm also told that as soon as talks with IBM broke down, that Sun officials also re-approached several key players it had already spoken with about a possible deal, but that none seemed interested in re-starting talks. Those companies include Intel [INTC
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], Dell[DELL
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] , Hewlett-Packard [HPQ
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While IBM hasn't formally told Sun it isn't interested in pursuing a transaction, several sources close to Big Blue tell me that after due diligence, IBM has decided that a "deep and intense" governmental review, both in the United States and Europe, made the deal far less attractive, "no matter the price."
Regulators have apparently advised IBM that if it were to pursue a deal with Sun, the review could last as long as 9 months, and force the company to open its books and its business practices to investigators. "That's attention that IBM wouldn't want at any price," said one source. Another told me it would essentially be a financial "proctology exam," that just wouldn't be worth it.
Fact is, this deal is all about servers, and all about IBM's competition with HP. On high-end servers, a combined IBM/Sun would control something like 60 percent of the business. Separately, IBM owns about 32 percent of the overall market. HP owns 30 percent; Dell 12 percent and Sun about 10 percent.
The threshold to launch a European Union investigation would be anything over 40 percent market control. In this country, anything over 60 or 70 percent would spawn the ire of regulators. And while Sun might offer IBM a competitive leg-up in the business, it isn't quite the slam dunk IBM had hoped for, based on the company's due diligence.
One source tells me that IBM never formally announced that it was in negotiations with Sun because interest was so preliminary, that news of the possible deal broke pre-maturely as IBM was in the midst of its very early due diligence. Once the company was made aware of the likely government resistance to the deal, IBM balked. Further, as Sun pressured IBM to maintain a certain price, IBM executives became even more skittish.
I'm told from one source that Sun is available now virtually at any price, but that IBM may not be interested in Sun at any price. That's not to say that if the asking price fell dramatically, down to $8, or even $7, that IBM might want to return to the table. But I'm told that's a long-shot since if IBM deemed the Sun deal truly strategic, 50 cents, $1, even a $1.50 either way wouldn't make that much difference to IBM. What's a few hundred million dollars when you're sitting on billions.
Bottomline: If it wanted Sun, it would have bought Sun. An industry source tells me that this simply isn't about price, that IBM, after dealing with an 8-month review of its Telelogic acquisition by EU regulators last year just doesn't want to go through that again, especially for an acquisition like this.
That means Sun is in serious trouble, and it's only going to get worse when the company reports earnings a week from next Tuesday. IBM reports Monday, and you can bet this chatter will find its way onto the company's conference call. Sun has been in play for the last several months, and all this uncertainty can't be good for customer confidence. An outside shot has EMC as a possible suitor for Sun, but "outside shots" might be all that's left for this once mighty Silicon Valley stalwart.
I'm not even clear now just how serious IBM was in a possible deal for Sun. Sun insiders tell me "very." Sources close to IBM say "not so much." I've learned never to say never (look at Microsoft [MSFT
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] and Yahoo! [YHOO
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] ), but either way, Sun appears to be out of options.
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes