Tertiary Benefactors of KKR Investing in Sun Microsystems

Stock Tickers: SUNW, COMS, NOVL, GTW

Sun Microsystems (SUNW) is trading up 6% at $6.00 at 10:00 AM EST (was up as much as 9% out of the chute) this morning.  As we noted yesterday, that 52-week high and multi-year high is $6.25.  SUNW has already traded 47 million shares and will probably be the most active stock on NASDAQ today.

The fact that they beat earnings and are profitable again helped a lot, but the real impact is coming from this $700 million investment from the KKR private equity group.  This doesn’t signal for sure that KKR wants to acquire SUNW entirely, but this has the rumor mongers talking and the fast money traders have the upper hand.  The indirect fallout that is probably more interesting to discuss is looking at some of the old tech leaders that are just tag along stocks that have been in the basement for years.

So which companies would this pertain to? Immediately the three names that come to mind are Novell (NOVL), 3Com (COMS), and Gateway (GTW).  All 3 have been rumored to be potential private equity targets because of some perceived hidden values in the recent past, although these hopes are in reality more hopes and wishes than they are of substance. 

Do I personally believe these 3 are more attractive based on a $700 million infusion of a well-informed and respected private equity firm into Sun Micro? No, I don’t.  But that doesn’t mean the fast money traders aren’t looking for and evaluating secondary or tertiary plays off the news.  That’s what they do.

Here’s how these 3 are trading today:
NOVL up 1.5% at $7.11 ($2.8 Billion market cap; $1.24 Billion total liabilities);
COMS +1% at $3.99 (won’t comment on market cap or balance sheet because of Huawei asset transfers); GTW +0.5% at $1.94 ($721M market cap; $1.38 Billion liabilities).

Jon C. Ogg
January 24, 2007