I.B.M. Reportedly Will Buy Rival Sun for $7 Billion

http://www.nytimes.com/2009/04/03/technology/business-computing/03blue.html

I.B.M. Reportedly Will Buy Rival Sun for $7 Billion
By ASHLEE VANCE and ANDREW ROSS SORKIN
Published: April 2, 2009

I.B.M. appears on the verge of acquiring Sun Microsystems, a longtime rival in the computer server and software markets, for nearly $7 billion.

The two companies have been negotiating for weeks, ironing out terms of an agreement that would turn I.B.M. into the dominant supplier of high-profit Unix servers and related technology.

I.B.M. is offering $9.50 a share, down from a bid of $10 a share, said people familiar with the discussions who were not authorized to speak publicly. The new agreement would restrict I.B.M.’s ability to walk away from the deal, these people said.

Even at $9.50 a share, the deal would value Sun, based in Santa Clara, Calif., at close to $7 billion. It is close to a 100 percent premium based on Sun’s value before rumors of an acquisition spread last month.

Representatives of I.B.M. and Sun declined to comment. People familiar with the negotiations say a final agreement could be announced Friday, although it is more likely to be made public next week. I.B.M.’s board has already approved the deal, they said.
I.B.M., based in Armonk, N.Y., has spent weeks poring over Sun’s patents and licensing agreements. Some 100 lawyers have been working in a hotel in Silicon Valley on intellectual property matters.

Although in a slump of nearly a decade, Sun is one of the largest sellers of server computers and is known for systems based on its Sparc chips. It has a vast software portfolio, including the Solaris operating system , the open-source MySQL database and the Java programming language.

“Sun has obviously been a lost child for many years, but they have some great assets,” said Rebecca Runkle, director of technology research at Research Edge, an equities analysis business. She said that Sun and I.B.M.’s cultures would mesh in their commitment to large research and development projects.

Sun’s software assets would fit into I.B.M.’s long-term strategy of chasing higher-profit software and services sales. It could also give I.B.M. more strength in competing against Oracle, which has sold its database software on top of Sun systems for years.

I.B.M.’s acquisition of Sun would disrupt that long partnership with Oracle. I.B.M. could also undercut Oracle by more actively promoting the free MySQL software, which has become the most popular database software with Internet companies.

Hardware inherited from Sun could present antitrust concerns. I.B.M. faces an antitrust complaint from T3 Technologies over its dominance in the mainframe market. By buying Sun, I.B.M. would gain close to total control over robotic tape storage devices used to file data on mainframes.

Sun has a sales and technology partnership with Fujitsu for the sale of Unix servers. If I.B.M. buys Sun, Fujitsu and Hewlett-Packard will be the combined company’s only major competitors in the Unix market, a possible concern for regulators here and in Europe. Sun faces a patent infringement lawsuit from the storage maker NetApp and has countersued. NetApp has a sales pact with I.B.M.

Silicon Valley executives, including Paul S. Otellini, chief of Intel, have said that Sun has spent months seeking a suitor.

Shares of I.B.M. rose more than 3 percent on Thursday, to $100.82, and Sun’s shares rose more than 2 percent, to $8.21.

Steve Lohr contributed reporting.

A version of this article appeared in print on April 3, 2009, on page B2 of the New York edition.