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Sun-IBM Collapse Has a Gridiron Feel
04/06/2009 12:33
While most analysts are comparing the breakdown in merger talks between IBM and Sun Microsystems to the Microsoft-Yahoo debacle, to me it smells more like pigskin. As in, the blockbuster NFL trade that just sent Pro Bowl quarterback Jay Cutler from the Denver Broncos to the Chicago Bears. Like the Broncos with Cutler, IBM has a plethora of reasons for striking a deal with Sun, including the prospect of acquiring its growing open-source software business. Like Cutler, Sun has rejected a deal that seems, with its share price down 28 percent Monday, mighty fair in retrospect. And like the Cutler-Denver contretemps, the Sun-IBM deal seems to have fallen apart for reasons that have less to do with competitive advantage than with pride and pique. A faction of Sun directors led by founder Scott McNealy – not exactly one of the tech industry’s less prepossessing figures – balked at the terms and price of the sale, according to reports in The Wall Street Journal and The New York Times. That means that, as in the old joke about the guy in the bar offering a woman $1 million to sleep with him, we’re just in the negotiating phase now. And the comparisons with Yahoo don’t hold up. While the two companies both have about $3 billion in cash reserves, Sun’s revenue, at more than $13 billion, is nearly twice that of Yahoo. And several lines of business, as well as geographical regions, are growing even as the company loses money. Beyond that, Yahoo is essentially a media company, while Sun – even though it lacks a clear strategy for the future – has for years been among Silicon Valley’s most innovative companies. As Simon Brocklehurst, CEO of the U.K. Psynixis, observed in a blog post last year, “Sun is not a ‘box company’ – they spend billions on R&D each year. They’re a ‘systems company.’ They offer servers that are genuinely innovative and well-designed. They also have one of the most impressive software stacks in the technology industry.” That’s all in contrast to Yahoo, which has little significant intellectual property of its own to offer an acquirer. Don’t get me wrong: Sun is a troubled company in a contracting market, and continuing as an independent entity is not a viable long-term option. I just think that it remains an attractive acquisition target, and the IBM deal (in contrast to the Microsoft-Yahoo hook-up, which always had a whiff of desperation about it) makes too much sense not to happen. “These are surmountable problems,” John Rymer, an analyst with Forrester Research, told eWeek. But as we’ve seen recently in the NFL, such deals don’t always work out.
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