IBM scraps Sun's offer to $9.55/share

ORONTO, CANADA: IBM cut its offer for Sun Microsystems Inc. to $9.55 a share, after a thorough vetting and may soon unveil details of its largest- ever takeover. Price was not final, although IBM had decided that Sun Micro was worth less than thought after a weeks- long due diligence process, a source said.

A merger would create a server industry powerhouse, with a commanding 65 percent of the $17 billion Unix server market, a dominance analysts say might trigger antitrust scrutiny and concerns from clients.

A deal at $9.55 would mark a 92 percent premium -- or almost double -- Sun's closing share price on March 17, the day before news of IBM's offer emerged.

Sun agreed to a lower price in return for stronger commitments from IBM that it will complete the deal, even if it faces intense regulatory scrutiny, the Wall Street Journal reported.

Sun would hand IBM a clear lead at the high end of the $45 billion overall server market fought over with Hewlett-Packard Co. It would broaden IBM's software portfolio, add storage products that vie with EMC Corp and Network Appliance Inc and provide an edge over Cisco Systems Inc, which some see as its biggest rival in the long term.

"Sun has many valuable assets that have not been adequately monetized," said Cross Research analyst Shannon Cross. But she added that the challenge would be to integrate the two cultures and product lines.

The Wall Street Journal reported that IBM was in the final stages of negotiations with Sun, but had reduced its offer from $10 to $11. Last month, the newspaper reported the deal was worth about $8 billion, including $1.4 billion in cash on Sun's balance sheet, if IBM were to pay $10 to $11 per share.

Officials with IBM and Sun, which now carries a market capitalization of about $6 billion, declined to comment.

Some analysts say IBM could have a hard time improving performance at Sun, which has been lackluster for years. IBM, which runs services, hardware and software businesses, has kept profits growing in the midst of the worst US economic recession in decades.

The shares of the Sun -- whose name was once synonymous with the Internet, but never recovered from a dive in sales after the dot.com bubble burst -- have lost 97 percent of their value since peaking at $260 in 2000.

Source: Reuters