By Matthew Quinn
Sun Microsystems disclosed in a regulatory filing that it was engaged with two companies in merger discussions in addition to Oracle, which agreed to buy Sun last month for $7.4 billion.
In a preliminary merger proxy statement filed with the Securities and Exchange Commission on Tuesday, Sun described negotiations with "Party A", presumed to be IBM, and another company, "Party B," which ultimately never made an offer.
The filing indicates that much of the concern regarding Party A's offer was over whether Party A would receive approval from antitrust authorities. Sun management was also concerned about what would happen to Sun if Party A failed to get the green-light from regulators. The filing also shows that Sun executives had questions about Party A's obligations to close the deal if government approval was given.
Party A first approached Sun about a merger on Nov. 6, 2008. Over the next month or so, Sun reached out to Party B to explore a possible deal. Party B expressed interest but determined "pursuing a transaction in the near term was not optimal for Party B at that time," according to the filing. Party B was still kept in the fold until nearly the very end, even entering into a confidentiality agreement with Sun and performing due diligence.
In January, Party A delivered a preliminary offer of $8.40 to $8.70 per share in cash, later revising it to $10 per share in February on condition that Sun agree to exclusive negotiations with Party A.
Shortly thereafter, Sun's chairman, Scott McNealy, spoke with Larry Ellison, chief executive of Oracle, concerning a possible deal. However, Sun ultimately entered into the exclusivity agreement with Party A and terminated discussions with all other potential acquirers near the end of February.
Despite the agreement, Oracle didn't leave the picture and, on March 12, proposed acquiring some of Sun's software business, a minority equity stake in Sun and entering into certain strategic relationships. Sun opted not to terminate its exclusivity agreement with Party A by responding to Oracle's offer, however. (Ellison has since said Oracle will not sell Sun's hardware businesses.)
Party A eventually re-jiggered its offer, making two proposals, one for $9.40 per share under some conditions and one for $9.10 per share under others.
Sun rejected the offers and terminated its exclusivity agreement with Party A, but did not end negotiations with it. The door, however, was now open for Oracle, which eventually made an offer of $9.50 per share.
While considering the offer, Jonathan Schwartz, Sun's president and CEO, called Oracle president Safra Catz proposing a higher offer. Catz rejected the price and, on the afternoon of April 19, 2009, Sun agreed to Oracle's offer of $9.50 a share.
Of course, the saga isn't quite over yet. Sun shareholders still need to approve the deal and no date has been set for a shareholder meeting yet. Additionally, Sun is facing several shareholder lawsuits claiming the deal price is too low.
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