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IBM reportedly in talks to buy Sun Microsystems{/B}
Sun shares jump 65% on report of potential $6.5 billion buyout deal
By Aude Lagorce & Rex Crum, MarketWatch
Last update: 9:44 a.m. EDT March 18, 2009Comments: 42SAN FRANCISCO (MarketWatch) - Sun Microsystems Inc. saw its shares shoot up by more than 66% Wednesday following reports that it is in talks to be acquired by IBM Corp. for as much as $6.5 billion in a deal that would put hardware back at the core of Big Blue's operations and bolster its computer-server business, according to a published report.
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JAVA, , ) climbed $3.31 a share to $8.27 after the Wall Street Journal reported that a deal with IBM could be reached this week, but that the talks are not certain to go through.
If the deal is finalized, it would be the largest purchase ever for Armonk, N.Y.-based IBM (IBM:International Business Machines
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Last: 90.59-2.32-2.50%

9:59am 03/18/2009

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IBM 90.59, -2.32, -2.5%) -- and would amount to a 100% premium over Sun's closing price of $4.97 a share on Tuesday. Sun's shares are down more than 70% over the past year.
The report also said that Santa Clara, Calif.-based Sun (JAVA:JAVA
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JAVA, , ) had shopped itself to other prospective buyers including Hewlett-Packard Co. (HPQ:Hewlett-Packard Co.
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Last: 28.88-0.87-2.92%

9:59am 03/18/2009

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HPQ 28.88, -0.87, -2.9%) , which declined to make an offer. See link to story on WSJ.com.
A change of heart on the role of hardware?
By making a bid for Sun, IBM may be acknowledging the necessity of competing in hardware, despite its slim profit margins. A deal would herald an important shift in Big Blue's strategy of the past few years, which have seen it move away from hardware --selling for instance its personal computer business-- and focused instead on acquisitions in the more lucrative services arena.
"IBM's broader strategy has been to move away from the lower-margin hardware business....but as the industry consolidates, they may decide that they need a stronger data-server business to make the most of their services offering," said Chris Ingle, consulting director in research firm IDC's European systems group.
At the moment, IBM gets more than half its revenue from services, and the bulk of its profit comes from services and software.
Acquiring Sun would put hardware back at the core of the company's operations and could prove helpful as it takes on old competitors such as Hewlett-Packard and new rivals such as Cisco Systems (CSCO:Cisco Systems Inc
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Last: 16.22+0.08+0.50%

9:59am 03/18/2009

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CSCO 16.22, +0.08, +0.5%) , which on Monday announced its much-anticipated foray into the server business. See commentary on Cisco's move.
"IBM may find that they're not interested in being a number three or a number four in the industry, squeezed between HP and Cisco," Ingle said.
If it were to buy Sun, IBM would boost its share of the servers market by roughly 11 percentage points, to more than 40%. Sun has a particularly strong position in the telecom and finance sectors, but its reliance on the U.S. market has been viewed as a burden.
The server market has been challenging of late, with the top five vendors -- including IBM, Hewlett-Packard and Sun -- all posting declines in their fourth-quarter server revenue, according to IDC.
There could be regulatory hurdles to a deal, however. Christine Varney, the Obama administration's next antitrust chief, has voiced support for a different approach to deals than that of the Bush administration, which was generally amenable to mergers.
And the cultures of the two companies couldn't be more different. IBM is an East Coast giant that helped invent the computer industry while Sun thrived in the go-go environment of the 1980s in the Silicon Valley and has never fully recovered from the dot.com crash.
"It's not that a deal doesn't make sense. It's that it's a big gamble. And the integration challenges will be massive," Ingle concluded.