This article is going to blow your mind (bolding is by me)! I am sick to death of the greed exhibited by some of these executives!
IBM-Sun Deal Said to Fail Over Payouts, Other Terms (Update2)
By Connie Guglielmo and Katie Hoffmann
April 6 (Bloomberg) -- International Business Machines Corp. and Sun Microsystems Inc.’s merger talks collapsed after disputes over millions of dollars of payouts to Sun executives, in addition to the takeover price and conditions attached to the deal, according to people familiar with the situation.
Chief Executive Officer Jonathan Schwartz and Chairman Scott McNealy have contracts that mean they would receive three times their annual pay, including salary and bonus, should Sun be acquired. IBM balked at the prospect of making payments to executives, the people said. Schwartz’s salary was $1 million last year and his target bonus was twice that amount.
A disagreement also erupted over the price, with each side haggling over an offer of $9.10 or $9.40 a share, said the people, who declined to be named because the talks were private. Sun’s board contended IBM wanted too much control over Sun’s projects and employees before the deal closed, without providing guarantees that the transaction would be completed if it faced delays such as antitrust review, the people said. “IBM was in the driver’s seat,” said Peter Sorrentino, who oversees $13.3 billion at Huntington Asset Advisors in Cincinnati, including almost 1 million IBM shares. “Sun can survive as an independent company, but the longer the recession goes on, the more likely it is the value of the franchise begins to fade.”
IBM, based in Armonk, New York, had planned to announce the deal at 7:30 a.m. New York time today, one person said. Sun’s board, advised by Credit Suisse Group AG and the law firm Wilson, Sonsini, Goodrich & Rosati, told IBM on April 4 it was breaking off exclusive talks. The next day, IBM, advised by the law firm Cravath, Swaine & Moore LLP, retracted its offer.
No Further Meetings
No further meetings are scheduled between the two companies today and Sun is skeptical of whether a deal can now come together, according to one of the people. The acquisition fell apart primarily because of price, said a person familiar with IBM’s stance.
Sun, based in Santa Clara, California, dropped $1.93, or 23 percent, to $6.56 at 4 p.m. New York time in Nasdaq Stock Market trading. That was the biggest decline since July 2002. IBM fell 66 cents $100.56 in New York Stock Exchange composite trading. Edward Barbini, a spokesman for IBM, the world’s largest computer-services provider, declined to comment. Sun spokesman Shawn Dainas declined to comment.
Largest Deal
The collapse of what would have been the biggest technology deal of the year increases pressure on Schwartz to find another suitor as Sun heads for its biggest annual loss in six years.
The offer, equal to about $7 billion, was as much as 11 percent higher than Sun’s stock price on April 3. Sun jumped 79 percent on March 18, the day the talks were first reported. “Sun made a horrible mistake,” said Paul Meeks, a principal with Winsor Asset Management in Charleston, South Carolina. “Wall Street analysts probably optimistically expect their revenue to decrease year-over-year for the next several years -- they should have just taken that money and ran.”
In a statement, Sun said it is “committed to its leadership team, growth strategy and building value for its shareholders.” Sun’s change of control provisions would award its top executives, other than McNealy and Schwartz, 2.5 times their salary and bonuses, two years of health benefits and accelerated vesting for stock options and restricted stock awards, according to a regulatory filing.
McNealy’s Compensation
McNealy, who co-founded Sun in 1982, was awarded $6.45 million in compensation last year, including $1 million in cash for his “service as an employee of Sun,” according to the filing. He owns and has options on 17.5 million shares, giving him a 2.3 percent stake in the company. Schwartz owns or has options on 1.64 million shares. His total compensation last year, including salary, was $7.7 million.
Sun is the fourth-largest maker of servers, the computers used to run Web sites and corporate networks. IBM is the top vendor, so the combination would have paved the way for IBM to increase its lead over No. 2 ranked Hewlett-Packard Co. to almost half the $53 billion global market for the machines.
In the fourth quarter, server sales industrywide fell 14 percent, the most since the aftermath of the dot-com bust, as customers held off buying both costly and inexpensive systems, according to research firm IDC. Sun depends on servers for almost half its sales and counts General Electric Co. and General Motors Corp. among its customers. The company is poised to post a $1.24 billion loss for the year ending June 2009, according to the average of six analyst estimates compiled by Bloomberg.
Antitrust Scrutiny
If the two sides agree to a deal, they may draw antitrust scrutiny for their combined use of Unix, an operating system that runs the most powerful server machines. IBM leads in sales of those machines, with a 36 percent share, while No. 2 Sun holds 28 percent, according to researcher Gartner Inc. An antitrust review caused concern for both sides because of uncertainty about how such cases would be handled by President Barack Obama’s administration, one person said.
When Schwartz took over as CEO from McNealy in 2006, the company had losses totaling $4.51 billion over four years and was falling behind rivals such as IBM, Hewlett-Packard and Dell Inc. in the server market. To buoy profit, Schwartz is slashing as many as 6,000 jobs.
