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Done Deal
On April 2, 2009, two weeks after the initial story broke, The New York Times reported that sources close to the negations had revealed that a final agreement was imminent and that "I.B.M.'s board has already approved the deal." "I.B.M.," the sources said, "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."
It seemed like a done deal.
But on April 3, 2009, The Wall Street Journal reported that IBM had lowered its bid to $9.55 per share and that Sun had agreed, in return for stronger commitments from IBM that IBM would complete the deal even if it faced intense regulatory scrutiny.
Although terms of the deal were being tweaked, it still seemed like the deal would be done. IBM and Sun, reported the Wall Street Journal, "are in the final stages of negotiations to combine the two corporate computer giants."
Whoops....
Two days later, on April 5, 2009, The New York Times reported that the IBM-Sun deal had collapsed. The reason, sources said, was that Sun's board was dissatisfied with IBM's reduced price offer.
"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 New York Times reported.
The Wall Street Journal corroborated this version of the deal's collapse:
"People familiar with the situation said Sun's board rejected a formal acquisition offer by IBM on Saturday, sending a notice terminating Sun's agreement to negotiate exclusively with IBM. IBM on Sunday withdrew its offer to buy Sun, said a person informed about the situation."
The net result was that "Now Sun is free to pursue other suitors, including I.B.M. rivals like H.P. and Cisco Systems, The New York Times reported. "Cisco recently entered the market for server computers."
The deal had unraveled and Sun could talk to other potential buyers. But notably absent in the reporting was any mention of Oracle as a suitor.
Oracle Plays Possum
It is noteworthy that Oracle was never mentioned in the news reports as a bidder for Sun up to the time it acquired Sun. For example, when the IBM-Sun negotiations broke down, CNBC reported that Sun officials "re-approached several key players it had already spoken with about a possible deal, but that none seemed interested in re-starting talks. Those companies include Intel, Dell, Hewlett-Packard, and Cisco Systems."
Note that Oracle was not on the list.
Likewise, The Associated Press reported:
"It's not clear whether Sun has other potential partners waiting in the wings. The list of other possible buyers is very short: Hewlett-Packard Co., Dell Inc. and Cisco Systems Inc. are a few options, though none has publicly expressed interest."
Again, Oracle is not mentioned.
Similarly, The 451 Group, in its analysis of the IBM-Sun Deal, opined that "while IBM has been the named suitor for Sun, there are at least two other companies that could well be putting together their own bids for innovation-rich but profit-poor Sun: Cisco and Fujitsu."
Oracle again is conspicuously absent.
The perception that Oracle was not interested in acquiring Sun may have been influenced by remarks made by Larry Ellison at Oracle's annual shareholder meeting in 2003. Asked whether Oracle had considered buying Sun, Ellison said he had thought about it but had decided it was a "bad idea."
"I don't think Oracle should be in the hardware business, so I don't think you'll see us buying any hardware companies," Ellison said, adding, "But we have thought about it."
Things Not Always as They Seem
The absence of Oracle, as well as HP, as active suitors in the minds of analysts and journalists was significant in that it colored their perceptions, opinions, analysis, and reporting. With IBM seen as the only vendor interested in Sun, the breakdown in the IBM-Sun negotiations was portrayed in the media as a huge blow and embarrassment to Sun, with Sun seen as making a gigantic blunder in letting the IBM deal slip away. On the other hand, it made IBM's position seem stronger.
For example, the Associated Press reported that:
"The public unraveling of the talks is an embarrassment for Sun, which has been dogged by billions in losses since the dot-com bubble burst in 2001. The breakdown could be a boon for IBM, which doesn't need the deal as badly, and now could demand an even cheaper price if Sun's investors hammer the company for rebuffing the offer."
Similarly, The Register opined on April 2, 200, that, "If IBM, having looked closely at Sun, walks away, that could be a kiss of death. No one else wants the company, it seems. Where does that leave Sun's customers?"
Said Rick Hanna, equity analyst with Morningstar Inc., "Let's hope that Sun doesn't go down the same path as Yahoo. I hope this wasn't a brinksmanship play by the company's board, because there really are so few suitors for the company. A deal has to happen for Sun long term. I just can't see them remaining independent."
Equally critical of Sun was analyst Bob Djurdjevic, president of Annex Research, who said, "the premium IBM was offering was better than anything Sun could expect from other potential buyers in this rocky economy. 'My first thought was, oh my God, these guys are off their rockers—IBM threw them a rope, and they used it to make a noose.' "
Likewise, A. M. Sacconaghi, analyst with Sanford C. Bernstein, saw the collapse of the IBM deal as precarious for Sun. "This leaves Sun in a tough situation. 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. "
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