Sun Microsystems’ potential $7bn takeover by IBM remained in limbo yesterday after Sun’s refusal to agree to a deal on its current terms – which prompted IBM to withdraw its bid over the weekend – left the companies grappling over whether to rekindle talks.
Sun’s board was scheduled to meet on Monday as concern grew that a split between Jonathan Schwartz, chief executive, and Scott McNealy, chairman, prompted some to wonder whether Mr McNealy was fundamentally opposed to a deal. He has pushed for a higher price, according to people close to the matter.
While some people on the periphery of the talks surmised that Mr McNealy might return to serve as chief executive of the company he co-founded and led for 22 years, another dismissed such speculation as “ridiculous”. Sun issued a statement saying that it was committed to its current management.
Talks between IBM and Sun had moved haltingly in recent weeks as the companies bartered largely over terms of a deal, which IBM first loosely priced at $10 a share before letting its offer drift down into the mid-$9 range, people close to the matter say.
Sun’s board met on Saturday and returned to IBM with a request for a higher bid along with other changes to its proposal. IBM refused to raise its offer, prompting Sun to say it was ending the period in which the companies would negotiate exclusively with each other. IBM withdrew its bid.
IBM has refused to pay more or concede on terms for several reasons, said people familiar with its thinking. Sun is not generating as much revenue from certain assets, including MySQL, the open source software company it bought last year, as IBM had originally thought.
IBM and Sun also value some of Sun’s customer contracts differently, said one source, who said that there was “miscommunication” between the companies over how to value the revenue those contracts would make.
Sun wants IBM to assume more risk in the event that antitrust concerns or other issues prevent a deal from closing, but IBM has said that such additional protection would come at a price. IBM might have to divest some of the combined company’s magnetic tape data storage business for antitrust reasons, one insider said. But Big Blue believes a lack of specific financial details concerning that area of Sun’s business could hamper any sale process.
Sun has been actively seeking a buyer for months, and potential suitors Hewlett-Packard and Fujitsu have so far opted not to bid. Expectations remain low that another bidder will step up, but one insider said a bid from HP could not be ruled out.
“It’s purely a function of price,” this person said.
