IBM to Buy Sun?

sun_logo

The WSJ reports on the imperiled Sun Microsystems’ talks with IBM:

The disclosure of talks for Sun to sell itself to International Business Machines Corp. caused Sun’s stock to jump nearly 79% Wednesday to $8.89 on the Nasdaq Stock Market.

If the deal does go through, IBM is likely to pay $10 to $11 a share for Sun, according to people familiar with the matter. That would put the purchase price around $8 billion — or about $6.5 billion including the $1.4 billion in cash on Sun’s balance sheet. While negotiations are under way, a transaction might not occur and the talks could fall apart, these people said.

Sun, a major maker of computer server systems, has suffered disproportionately from the recession because of a reliance on high-end systems sold to the hard-hit financial industry. But some customers, former Sun executives and analysts said management mistakes contributed heavily to Sun’s problems.

Certain Sun investors began pressing board members about six months ago to find a suitor because the company had “a huge cost structure that they don’t understand,” said one person familiar with the situation. Talks with tentative buyers “intensified this year,” this person said. Besides flirting with Hewlett-Packard Co., Sun officials also approached Dell. IBM was an attractive buyer because “IBM has better controls [and] better management,” this person said.

Remember when Sun, with its sprawling campuses and ubiquitous servers, was too big to fail? Sun would be a good strategic purchase for IBM, which would benefit from balancing its service and software offerings–which have become a focus in recent years–with Sun’s high-end hardware business.

Another WSJ article describes in detail the pitfalls IBM could face if it chooses to purchase Sun. BusinessWeek also has a nice article on the possible buyout here.