Economy, Business, Finance News, Technology, Telecommunication, Smartphones, Tablet|Finance | Economy | Money | Financial Market | Stock Market | Central Banks | World Economy | World Finance | News Summary | News Aggregator | Handphones | Technology | Telecommunication | Internet | Broadband | Wifi | Wimax | Bluetooth | Smartphones | Tablets | Computers | PC | Netbook | Notebook

IBM’s talks to acquire smaller computer and software rival Sun Microsystems Inc broke down on Sunday after Sun rejected IBM’s $7 billion offer, a source with knowledge of the matter said.

The collapse of negotiations, if final, is likely to hurt Sun’s shares as a buyout was seen as a means of survival for the once-storied Silicon Valley company, which has been losing market share. A deal would also have helped IBM  compete more effectively against rivals such as Hewlett-Packard Co .

The source, who was not authorized to speak publicly about the matter, said Sun was unhappy with International Business Machines Corp’s offer of $9.40 per share or below, and that it was unclear if talks would resume.

The bid represented a premium of up to 89% on Sun’s shares before deal talks were first reported last month.

“Sun is now sort of damaged goods,” said Peter Falvey, a technology banker at Revolution Partners. “If IBM got under the covers and didn’t like what they saw, then what does that mean for other potential buyers?”

An IBM spokesman declined to comment, while Sun officials did not return calls.

Sources told Reuters last month that IBM was in exclusive talks to buy Sun and had proceeded to the due diligence stage. One source had said on Saturday that IBM lowered its offer price for Sun to $9.50 a share from $9.55 a share and that a deal may be announced this week.

Sun shares had risen to $8.49 on Friday, from $4.97 on March 17, a day before talks between the two technology companies were first reported. The Wall Street Journal had previously said IBM’s original bid was $10-$11 a share.

The collapsed talks are expected to damage the smaller Sun more than IBM, the world’s largest technology services provider, which has fared relatively well despite the global economic slump thanks to its outsourcing business and its shift from hardware to higher-margin software sales.

Kaufman Brothers analyst Shaw Wu said it was a mistake for Sun to reject the bid, citing the leap in Sun shares since reports of the deal talks.

“The acquisition is already factored into the market’s thinking. To reject it over 50 cents a share, or whatever it may be, doesn’t seem like a very prudent move,” Wu said.

Sun posted an 11% decline in quarterly revenue for its fiscal quarter ended Dec. 28, while gross margins shrank to 41.9% from 48.5% from a year earlier.

The company rose to prominence selling high-end computer servers in the 1990s but never fully recovered from the dotcom bubble burst earlier this decade. Analysts also say it has failed to fully capitalize on its software assets including Solaris and Java.

Some analysts have thought from the start that a deal between Sun and IBM could prove difficult, particularly due to the likelihood of intense antitrust scrutiny.

The merger would give the combined company 65% of the $17 billion high-end Unix server market, according to market researcher IDC.

Failed negotiations with IBM could mean that Sun will need to look for another buyer, and contend with a lower offer. But no bidder other than IBM has emerged in the months that Sun has been shopping itself.

The Wall Street Journal reported that Sun had demanded assurances from IBM that it would proceed with the deal in the face of regulatory challenges, fearing IBM’s offer left too much room for it to walk away.

While a deal was widely seen as more crucial for Sun than for IBM, many analysts had also said it would help IBM if the company is able to cut costs and make better use of Sun’s assets.

IBM shares have also risen 10% since the negotiations were first reported, helped by an upswing in the overall market.

Tim Ghriskey, chief investment officer for Solaris Investment Management, which manages about $2 billion, said the latest developments could be part of negotiating tactics and that Sun is still likely to strike a deal at around $9.40 a share and that IBM was still the most likely buyer.

“Like any acquisition candidate they are trying to force the highest bid possible,” Ghriskey said. “IBM doesn’t necessarily need these assets. But I think they could probably benefit from them at a reasonable price.”

Buying Sun would hand IBM a clear lead at the high end of the $45 billion overall server market fought over with Hewlett-Packard.

It would also broaden IBM’s software portfolio, add storage products that vie with EMC Corp and Network Appliance Inc.

Analysts have said Sun’s software could also help IBM compete with Microsoft Corp (MSFT, Fortune 500), as well as Cisco Systems Inc (CSCO, Fortune 500), which some see as IBM’s biggest rival in the long term.

Both Cisco and IBM have been expanding beyond their traditional products to new technologies like “cloud computing,” in which companies store data and computing power in remote data centers accessed over the Internet, rather than buy their own computer equipment. – Reuters

Related Posts:

• IBM might succeed in buying Sun

––

Intel Corp Chief Executive Paul Otellini said IBM’s discussions to acquire Sun Microsystems Inc are likely to succeed for one ringing reason: Money Talks.

IBM is offering to pay as much as $8 billion, or $10 to $11 per share, The Wall Street Journal reported last week. That compared with Sun’s share price of $4.97 before the IBM talks were reported. The stock closed at $7.85 on Wednesday.

Sources with knowledge of the matter told Reuters IBM was in exclusive talks with Sun and IBM was examining Sun’s businesses as part of a due diligence process.

Sun has long been cited as a takeover target for IBM, Hewlett-Packard Co, Dell Inc or Cisco Systems Inc, which introduced a comprehensive set of data center products early last week.

During a chat with Intel employees on Monday, Otellini said it is no surprise International Business Machines Corp’s interest in the high-end computer maker comes in the wake of a plunge in Sun’s stock price.

“I can tell you that Sun was shopped around the valley and around the world in the last few months,” Otellini said in comments detailed on Wednesday in a filing with the U.S. Securities Exchange Commission.

“A lot of companies got calls or visits on buying some or all the assets of the company. It looks like IBM is in the hunt now. And at a hundred-and-some-odd-percent-premium, I suspect they’ll get it.”

Asked if Cisco’s entrance might have spurred IBM to make a move on Sun, Otellini said: “I don’t think it had anything to do with Cisco.

“I think cheap Sun price — a low price — spurred a lot of interest,” he said, according to the filing.

Before the reports of IBM’s interest, Sun’s shares were down more than 70 percent in the previous year.

Still, Intel’s CEO said he could see how IBM could benefit from the deal.

“I think IBM is trying to consolidate architectures,” he told Intel employees. “IBM has the strongest Java license in the industry. By picking up Sun — which is the creator of Java — they really consolidate their position not just in Linux, but also in Java.”

In the end, Otellini remained unsure how he felt about a potential marriage of IBM and Sun, a deal that would combine the world’s No. 1 and No. 4 makers of computer servers. Intel counts both IBM and Sun as customers. – Reuters

Related Posts:

• Sun reject IBM offer