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IBM Doesn’t Want Sun: CNBC

IBM had reportedly not told Sun it wasn't interested when CNBC ran with its story

Well, if rebuffing IBM's $7 billion offer as too low the weekend before last was a negotiating tactic then the gambit has blown up in Sun's face according CNBC.

Following a Bloomberg story saying Sun wanted IBM to come back to the table - a story that made no mention of price - CNBC rustled up its own sources who told the cable channel that IBM had washed its hands of the whole affair.

First CNBC heard IBM wouldn't touch Sun now with a 10-foot pole having been told by the Justice Department, the SEC and the European Commission that it would be in for a six-nine month review that would mean financial and business practice disclosures that IBM is not prepared to make, preferring to lie low and not attract attention.

CNBC said it was told Sun had reached out to IBM in a letter Tuesday offering to be utterly flexible on price and terms.

IBM had reportedly not told Sun it wasn't interested when CNBC ran with its story.

Bloomberg had reported that - trapped in a dark alley with nowhere else to go - Sun was ready to restart takeover talks with IBM provided IBM put more starch in its commitment to actually close the deal despite whatever regulatory hurdles it had to vault.

Supposedly IBM had trimmed the price it was willing to pay to about $9.40 a share after due diligence and after being asked for guarantees that it would acquire Sun no matter what trouble the pair run into with the regulators.

Sun was supposedly willing to take a lower price of $9.55, down a dollar, in exchange for such an undertaking.

The Sun board was reportedly split over whether or not to accept the IBM offer with chairman Scott McNealy supposedly leading the nays. Presumably it would have been stupid to accept if the deal might not have gotten done.


CNBC said Sun then reached out to other companies again and got nowhere.

It reportedly talked to HP, Dell, Intel and Cisco. Cisco CEO John Chambers said Wednesday in Korea that if Cisco was interested it "would probably have already moved."

CNBC said the problem would have been the server market share that IBM would have had. Combined with Sun it would have been something like 42%, enough to set off the European Commission.

CNBC also claimed that after doing due diligence the competitive position IBM would have had vis-à-vis HP with its 30% share of the server market didn't look as attractive as it did going in.

Then CNBC came back with a different story. It said that IBM was an old hand at getting acquisitions past regulators and that wasn't the REAL deal breaker. The REAL deal breaker was those executive contracts that Bloomberg eluded to days ago, the ones we said would get stockholders' hackles up.

According to CNBC "The deeper issue is something IBM discovered during the due diligence process: A series of unusually structured contracts that Sun has with many key partners. Further, there's a ‘change of control provision' in many key executive contracts that Sun apparently was unwilling to unravel, and that was one of the reasons why IBM walked. I'm told this isn't a ‘golden parachute' or ‘poison pill,' but simply a provision that forces the buyer to shell out tens of millions of dollars to a small group of Sun executives if the company is acquired. When IBM said it would have to lower the price of its offer to accommodate for that provision, Sun said no."

Wall Street is still hopeful since Sun's stock price was up 4.4% Thursday to $6.40.

CNBC however says it heard that McNealy wants to make a Michael Dell-like return as CEO and that unless Sun is willing to rewrite those employment contracts and take $9.40 a share IBM's outta here.

IBM's reported interest in Sun and its baggage still befuddles many in the computer industry particularly at the price being quoted.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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