IBM Takeover of Sun Hits a Snag

According to several reports, the merger of IBM and Sun Microsystems appears to be coming apart, after a chain of events over the weekend including IBM reducing its seven billion offer, the Sun board reject IBM’s takeover proposal and IBM then withdraw the bid completely. Troubles were first reported on Saturday, saying that co-founder Scott McNealy opposed the deal.

Whether IBM decision to withdrawal the bid  amounts to a negotiating tactic  is unclear. Though the offer is off the table, the two sides could resume.  It is not clear what Sun’s options are without IBM’s interest; Sun’s shares rose on news of the deal but then dropped about 24% on the open Monday. No other company is known to be interested in the Silicon Valley company. As a result, customers may be skittish about its prospects if the merger doesn’t go through.

One alternative option for Sun is for the company to consider going private.

The four Sun co-founders have enough clout in the area to help put together a rescue package. I don’t think Sun will have trouble raising the capital.  Although Sun is down 10.7 percent from fiscal 2008, Sun is projected to post revenues of just over $12 billion.