Sun stamps cloud of rejection on IBM deal

Sun Microsystems rejected IBM's formal buyout offer on Saturday, calling the bid insufficient and putting future deal talks at risk, according to a report Sunday in The Wall Street Journal.

IBM reportedly made a formal bid of $9.40 per share, or less, for Sun, which in turn rejected the offer and terminated Big Blue's right to exclusive merger talks, the Journal reported. IBM, in turn, withdrew its buyout offer.

In addition to believing the bid was too low, Sun apparently was also concerned that the terms of the offer provided IBM with too much flexibility in being able to walk away from the deal, the Journal reported.

Prior to reports that the companies were in merger talks, Sun Microsystems had closed at $4.97 per share and had been trading below $5 per share for a number of months.

Whether Sun would entertain resuming merger talks if IBM sweetened the deal was not clear, the Journal said.

A Sun Microsystems spokeswoman said the company does not comment on rumours or speculation. IBM representatives did not return calls seeking comment.

Antitrust lawyers and industry analysts say Sun's reported concerns over structuring a deal that would allow IBM to easily walk away from a merger agreement are important.

A lawyer who specialises in antitrust matters said: "It's obvious this deal will get a second request [for more information] from regulators. And once it does, it'll take six months, at a minimum, to a year before a decision is reached. Sun can be twisting in the wind for a year."

A second request for information signals to the parties antitrust regulators are formally investigating the transaction to decide whether to challenge it in court.

IBM holds nearly 32 per cent of the worldwide server market, based on 2008 factory revenues, and Sun 10.1 per cent, according to IDC. Combined, the two companies would account for nearly 42.1 per cent of the overall $53.3bn server market.

And within the high-end Unix server market, IBM held a 37.2 per cent slice of the market last year and Sun 28.1 per cent, representing a combined 65.3 per cent should a merger go through, according to IDC. Unix servers, while on the decline, still accounted for the majority of high-end, non-x86 server systems, last year, according to IDC.

Original article: Report: Sun rejects IBM offer, IBM withdraws bid from CNET News.com