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IBM in talks to buy Sun Microsystems
Wed Mar 18, 2009 10:05am EDT
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By Ritsuko Ando and Anupreeta Das
NEW YORK (Reuters) - IBM is in talks to buy Sun Microsystems Inc, sources with knowledge of the matter said, a move that could bolster the technology giant against rivals in the high-end computer server market.
International Business Machines Corp is offering to pay at least $6.5 billion, or double Sun's Tuesday closing price of $4.97, The Wall Street Journal reported online earlier. Shares of Sun jumped 64 percent in pre-market trading to $8.16, while IBM shares fell 2 percent to $90.89.
If they reach a deal, it would be IBM's largest-ever acquisition, and represent a departure from its recent strategy of focusing on deals to strengthen its software and services businesses, rather than hardware.
Analysts saw the talks as part of a consolidation trend, as Hewlett-Packard Co, IBM and Cisco Systems Inc jostle for control of corporate data centers and compete to supply the high-end computers that power complex corporate transactions and networks.
"It makes sense in an industry consolidation view, but looking at Sun's performance over the last couple of years, it's not one of my top picks for IBM to buy," said Jyske Bank analyst Robert Jakobsen, speaking from Denmark.
"Having said that, there's clearly a huge synergy combining these two companies," he said. "The market hasn't been kind to Sun Microsystems in the last 12 months. So it's not an expensive acquisition in my view."
Sun, which was not available for comment, has long been cited as a takeover target for IBM, HP, Dell Inc or Cisco, which introduced a comprehensive set of data center products earlier this week. Bankers have said Sun has been searching for a buyer in recent months.
But the challenge of valuing Sun's intertwined software, hardware and services businesses could put off potential buyers, analysts say. Sun has never fully recovered from the dotcom bubble burst in the early 2000s, when demand for its servers cratered.
IBM, which had nearly $13 billion in cash at the end of $2008, declined comment. Its largest acquisition to date is the $5 billion purchase of Canadian software maker Cognos in 2008.
The Wall Street Journal said HP had declined to buy Sun, citing a person briefed on the matter.
TECH SPENDING CUTS
IBM was the top supplier of servers in the fourth quarter, with a market share of 36.3 percent, according to market researcher IDC. HP has 29.0 percent, followed by Dell with 10.6 percent, Sun with 9.3 percent, and Fujitsu with 4.2 percent.
These five server vendors all posted declines in their fourth-quarter server revenue, hurt by pullbacks in corporate spending on technology due to the weak global economy.
IBM's move, as well as Cisco's announcement on Monday, may signal a new wave of partnerships and acquisitions in the data center market as companies strive to provide more comprehensive products and services to their customers.
Cisco's move could put into play data equipment maker Brocade Communications Systems Inc, infrastructure software maker Citrix Systems Inc and niche network optimization companies, such as Blue Coat Systems Inc and Riverbed Technology Inc, analysts said. Continued...
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