IBM Walks Away From The Table

After all the hype, and the inflated share pricing, and the speculation of what IBM would actually do with the company, IBM walks away from the negotiations. The people from Sun balked at the latest offer, and that was enough for IBM to leave.

While it certainly may be a tactic, it is not clear what it was that Sun was upset about, since the overall pricing was still up from the estimated share price before bidding started.

reported in the NY Times

I.B.M. Withdraws $7 Billion Offer for Sun Microsystems

After weeks of negotiations, I.B.M. withdrew its $7 billion bid for Sun Microsystems on Sunday, one day after Sun’s board balked at a reduced offer, according to three people close to the talks.

The deal’s collapse raises questions about Sun’s next step, since the I.B.M. offer was far above the value of the Silicon Valley company’s shares when news of the I.B.M. offer first surfaced last month. Sun, an innovative pioneer in computer workstations and Internet-era software, has struggled in the marketplace in recent years.

I.B.M. had a team of more than 100 lawyers conducting due-diligence research on potential issues in a purchase of Sun, ranging from antitrust concerns to Sun’s contracts with employees and I.B.M. competitors.

After the legal review, I.B.M. shaved its offer Saturday from $9.55 a share, the offer on the table late last week, to $9.40 a share, said one person familiar with the talks. The offer was presented to Sun’s board on Saturday, and it balked. The Sun board did not reject the offer outright, but wanted certain guarantees that the I.B.M. side considered “onerous,” according to that person.

Sun said it would no longer abide by its exclusive negotiating agreement with I.B.M., a second person familiar with the discussions said. On Sunday, I.B.M.’s board decided to withdraw the offer.

The breakdown in the talks, said the second person close to the negotiations, came over the shifting balance of price and conditions for the deal.

For example, I.B.M. scrutinized the “change of control” contracts with Sun executives, senior engineers and managers. I.B.M. felt that the payments to senior employees were higher and extended more broadly across the company than it had anticipated. I.B.M. pointed to the change of control contracts as one reason it was reducing its offer price.

Sun was most concerned about provisions that would restrict IBM’s ability to walk away from the deal.

“There’s lots of testosterone going back and forth,” said a third person familiar with the discussions.

All three sources would speak only on condition of anonymity because details of the merger talks are confidential.

Since last year, Sun executives had been meeting with potential buyers. I.B.M. stepped up, seeing an opportunity to add to its large software business, acquire valuable researchers and consolidate the market for larger, so-called server computers that corporations use in their data centers.

In their talks, I.B.M. and Sun had a contract to deal with each other exclusively. Now Sun is free to pursue other suitors, including I.B.M. rivals like Hewlett-Packard and Cisco Systems. Cisco recently entered the market for server computers.

The breakup of the deal talks, analysts say, is a blow to Sun’s prospects. “For I.B.M., given its size, this was never a transformational deal,” said A.M. Sacconaghi, an analyst for Sanford C. Bernstein. “But in Sun’s case, it’s an extremely material event.”

“This leaves Sun in a tough situation,” Mr. Sacconaghi added. “Sun was on a path to selling itself, and this will inevitably raise questions in customers’ minds, no matter what Sun says, about its commitment to a go-it-alone strategy.”

Whether the I.B.M. decision amounts to a negotiating tactic to get agreement on some final sticking points is unclear. Though the offer is off the table for now, the two sides could resume bargaining if Sun’s share price drops and it comes under pressure from investors. On Friday, Sun shares closed at $8.49.

Sun isn’t too big to fail, but it certainly is too important to fail. Also, the last thing we need is a buyout by Microsoft, who then tucks all of the intellectual property away, never to be seen again.

Steve Jobs is a betting man, and a maker of bold moves…are you listening and watching Steve?

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You know, a lot of girls go out with me just to further their careers. Damn anthropologists.      – Emo Philips