KKR’s Bad Bet On Sun Micro

By Douglas A. McIntyre Published Jan 24, 5:28AM EST

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KKR is putting $700 million into Sun Micro (SUNW) in the form of convertibles with a strike price of $7.21. Sun’s stock is now just above $6.

But:

A) Sun is not growing very fast. Revenue for the most recent quarter was up 7% over a year ago to $3.57 billion.

B) Sun’s earnings turned positive but the profit was very small at $126 million.

C) Sun does not need the money, so why take on potential dilution? The company already has $3.4 billion in cash and very little debt.

D) Sun said that its next quarter would be sequentially down to $3.388 billion $3.459 billion. So, where is the big recovery?

Getting KKR in the door makes good PR sense, but its a bad bet for the private equity house, and Sun’s investors should wonder why they are shouldering the cost of money the company does not need.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.