Rumors of IBM Bidding on Sun Microsystems

Yesterday, shares of Sun Microsystems jumped by 66% on news of a possible takeover from IBM. Sun’s stock price has been in a constant state of free-fall for the past 2 years, and rumors of a takeover from other companies have been floating around since the dot-com bubble burst. Many market analysts think this news could be a last-ditch effort by Sun management to once again spur buyout rumors so they can jump ship with a huge payday. Others feel this could actually work for IBM.

Buying Sun Microsystems would give IBM an additional 11% of the server market, bringing their stake to almost 42%. This would give them a substantial advantage over their nearest competitor, HP, that controls about 29% of the server market. Putting the squeeze on HP may be IBM’s main motivation behind these talks with Sun. According to Larry Dignan at ZDNet, IBM is still trying to get back at HP for their direct attack on IBM with their purchase of EDS.

Sun still controls some great technologies like Java and MySQL that could be very attractive to IBM. However, as Dana Garder points out, IBM already has competing products with Sun on almost every front, including hardware, software, technology, sales, cloud, labor and market reach. Many see no direct advantage to IBM buying Sun other than server market share, which is little consolation for the great risks that IBM would be taking on. The Obama administration might not even approve a merger of this size in today’s business climate of companies “too big to fail” like GM and AIG.

Industry insiders say a deal between IBM and Sun could be finalized as soon as the end of this week, if these rumors do in fact have any merit. If these talks fail, Sun’s stock price could get hammered, adding to a more than 70% decline in price over the last year. Stay tuned to see what unfolds later in the week regarding this merger.

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