Sun Shares Jump on Buyout Rumor
Shares of Sun Microsystems Inc. rose as much as 16% on Friday on takeover speculation as investors mulled over the future of the once-highflying computer maker.
The stock shot up from $3.44 to $3.98 after online reports claimed Chief Executive Scott McNealy was considering taking the company private with the help of buyout firm Silver Lake Partners.
McNealy and Sun President Jonathan Schwartz attacked the brief report on the website of BusinessWeek magazine in unusually colorful terms, describing it as an unidentified hedge fund manager’s attempt to make a quick profit by driving up the stock price.
“It’s a complete joke,” Schwartz said. And in an e-mail to the news website CNet, McNealy said, “I will bet this hedge guy is laughing his butt off.”
Silver Lake declined to comment.
After Sun’s comments, shares in the company retreated to $3.62 -- a 5% gain for the day.
The gyrations underscored the depths to which Sun has fallen and reflect continuing uncertainty about the firm.
Sun’s stock has plunged from above $60 with the evaporation of the dot-com and telecom companies that bought Sun’s sophisticated and expensive computers.
Sun’s slide has lasted longer than the declines of its rivals, largely because it was especially vulnerable to the spread of Linux, a free operating system also suited to big business computers. Linux is similar in structure to Sun’s Solaris software, and it can run on cheaper machinery.
After years of falling sales and quarterly losses, Santa Clara, Calif.-based Sun has staunched the red ink in the last few quarters, holding the line at about $12 billion in annual sales. It has slashed prices on its software and begun offering Linux and inexpensive computers as well as its traditional high-end gear.
With the situation no longer getting dramatically worse, analysts said they didn’t expect Sun’s management to seek a merger partner or other exit strategy.
“Their appetite for radically shaking up the company has been relatively low,” said Sanford C. Bernstein analyst Toni Sacconaghi. “Sun’s theme has been, ‘We’ve made investments and need them to run their course.’ ”
Many in the technology world remain unsure that Sun can do much more than survive.
“They stopped the bleeding, revenue-wise, and put some interesting products out there,” said analyst Frank Gillett of Forrester Research. “But they haven’t got the broader group of people convinced they have a sustainable niche.”
Still, any buyout offer above Sun’s market value of $12.2 billion would have to be taken seriously, analysts said.
And consolidation has been accelerating in the technology world, most recently with the similarly sized acquisitions of PeopleSoft Inc. by Oracle Corp. and of Veritas Software Co. by Symantec Corp.
Even private equity firms have gotten into the act, with San Francisco’s Hellman & Friedman agreeing this week to buy Internet ad firm DoubleClick Inc. for $1.1 billion.
But analysts who have mulled over the issue haven’t come up with a logical buyer for Sun. It would be an enormous undertaking for Fujitsu Ltd., Sun’s partner in making microprocessors. Sun’s size and the challenges facing the market for big computers would make it unappetizing for most financial buyers like Silver Lake, Sacconaghi said.
Sun’s rivals, mainly IBM Corp. and Hewlett-Packard Co., theoretically could be interested in buying Sun to reach its clients, Gillett said. On the other hand, he added, “it would seem easier to try to steal the customers.”
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Associated Press was used in compiling this report.
