Fri, Apr 17, 2009 - Page 11 News List

Sun might be willing to re-start IBM talks: sources

PAYING THE PRICE: Sun has lost about 28 percent of its value since talks about an acquisition of the computer systems maker by IBM broke down earlier this month

BLOOMBERG

Sun Microsystems Inc is willing to resume acquisition talks if International Business Machines Corp (IBM) makes a stronger commitment to complete the purchase, two people familiar with the matter said.

The companies are locked in a stalemate after negotiations fell apart almost two weeks ago, said the people, who declined to be identified because the information is confidential. There were no discussions as of Wednesday and each company was waiting for the other to make a move, the people said.

IBM, the world’s largest computer-services company, withdrew an offer valued at about US$7 billion after Sun broke off exclusive negotiations earlier this month.

Sun balked because there were no guarantees that IBM would stick with the takeover if the companies faced challenges such as an antitrust review, a person familiar with the matter said last week.

Sun chief executive officer Jonathan Schwartz was in favor of a deal, although he ultimately voted with the rest of Sun’s board to reject the offer because the price was too low and there was little certainty that the merger would close, that person said.

A purchase would help IBM CEO Sam Palmisano bolster the company’s sales of computer servers, which run corporate networks and Web sites. With Sun, IBM would control almost half of the server industry, whose sales declined 14 percent to US$13.5 billion in the fourth quarter, market researcher IDC said.

Sun spokesman Shawn Dainas, declined to comment. IBM’s Edward Barbini also refused to comment.

Sun has lost about 28 percent of its value since the talks broke down. The stock dropped US$0.10 to US$6.13 on Wednesday in NASDAQ Stock Market trading. Shares of Armonk, New York-based IBM fell US$0.42 to US$98.85 on the New York Stock Exchange.

A government antitrust investigation would hinge on how broadly regulators define the server market, said Greg Neppl, an attorney at Foley & Lardner LLP in Washington. If the probe focuses specifically on servers with Unix software, there will be a higher level of scrutiny, he said.

IBM is the leader in the Unix server market, with 36 percent of revenue in the fourth quarter, research firm Gartner Inc said.

Sun ranked third, behind Hewlett-Packard Co, with 28 percent.

Sun may have difficulty finding another bidder. Cisco Systems Inc CEO John Chambers said on Wednesday in Seoul that his company was not likely to bid for Sun.

If Cisco were going to make an acquisition in that area, it “would probably have already moved,” he said.

Hewlett-Packard, which had held talks with Sun last year, doesn’t plan to resume negotiations, a person familiar with the matter said on April 6.

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