It appears that IBM (IBM) may be walking out on its deal to buy Sun Microsystems, or could just be playing hardball to lower the price it is willing to pay.
In either case, the value of Sun’s stock is likely to go back to where it traded before the IBM buyout rumor hit the Street. That would be under $5. The stock closed at $8.49 on Friday.
According to Reuters, “The collapse of the talks, if final, would come as a surprise to Wall Street, which had seen the deal as a means for Sun’s survival, as well as a way for IBM to compete more effectively against rivals like Hewlett-Packard .” It would also leave Sun, one of the worst-managed tech companies in America, to fend for itself in a recession that has cut sharply into IT spending.
Sun has survived the last three years through cost cutting. In a good quarter over that period it has lost a modest amount of money. Since there are several larger companies competing with it for market share in the global server business, Sun’s losses could grow considerably if another suitor does not come along. That is not likely. The only other company which could use Sun as a way to buy market share is Dell (DELL), and it has not had any appetite for large acquisitions.
Douglas A. McIntyre
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