IBM and Sun are negotiating a takeover that values Sun at $9 to $10 a share. The discussions are in progress with the companies going through contracts for the merger.
According to various reports $7 billion are sitting on the table which is a billion down on the earlier sum. Speculation is rife that Sun will want to do the deal sooner rather than later before the price dips even further. Sun has been financially unsound for a while and a merger would mark the largest-ever deal pulled off by IBM.
Neither of the two technology companies has commented on reports that they are in merger talks. But analysts feel IBM may be interested in Sun’s software assets, including Java and Solaris, an operating system that is a version of Unix.
Sun is seeking assurances that IBM will stick with the deal even if it faces stiff regulatory opposition. Competitors of IBM are speculating that a merger between IBM and Sun could lead to higher prices for software and hardware.
"If this merger is announced, it will require careful, extensive review by antitrust authorities because of the wide range of products both companies now produce," said Ed Black, CEO of the Computer & Communications Industry Association, in a statement last month.
Analysts state that a deal would lead to consolidation and expansion for both IBM and Sun. Sun's hardware business is up against Intel, and it's struggling to keep afloat with larger players in the software business, such as Oracle, Microsoft, and IBM itself.
IBM is fairly secure, as the company's profits and revenue have stood the test of time as opposed to many competitors during the economic turmoil. It is in a sound position to monetize Sun's open source assets. The company has twice the annual research and development budget as Sun. Sun has approximately 1 million software developers writing applications as opposed to IBM’s 8 million. Sun also owns MySQL, an open source business for which it dished out 1 million in 2008.
An IBM-Sun combination would enjoy a dominant position in Silicon Valley and would pave the way for more mergers and acquisitions among technology companies.
Neill Occhiogrosso of Highland Capital Partners, a venture firm in Menlo Park stated that the merger is motivated by new technology, cloud computing. This is the inclination of companies to store data in giant server farms and deliver it over the Internet rather than keeping it on servers inside corporate walls.
"For cloud-ready data centers, there are challenges and complexities we haven't even anticipated yet, and startups will fill that void," he said. He prophesied that IBM, HP, Cisco and EMC would all hanker for more companies.
Sun’s stock was up nearly 2 percent to $8.15 on Thursday afternoon, putting its market capitalization at about $6 billion and IBM was up around 3 percent, to $100.42.
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