Hints of IBM, Sun Deal Coming Next Week

Sun and IBM rumored to be in merger talks

IBM and Sun Microsystems may announce a takeover deal next week, a source with knowledge of the matter said on Thursday, showing IBM may be completing a lengthy review ahead of what would be its biggest acquisition.

The source, who was not authorized to speak publicly about the deal, said a final price was not set, but IBM may pay Sun around $9 to $10 per share.

The Wall Street Journal earlier reported IBM reduced its offer to $9 to $10 per share from a previous $10-to-$11 range.

IBM and Sun officials declined to comment.

An IBM takeover of Sun would give Big Blue a clear lead in the $45 billion server market against Hewlett-Packard and Dell. It would also broaden IBM’s software portfolio, add storage products that compete with EMC and Network Appliance and provide an edge over Cisco Systems (NASDAQ: CSCO), which some see as its biggest rival in the long term.

A deal would have the most impact on IBM’s high-end server business, giving it 65 percent of a market worth some $17 billion, versus 27 percent for HP. It would also bolster IBM’s highly profitable software business and help ensure the survival of much-smaller Sun.

But some analysts say Sun’s lackluster performance could hurt IBM. Sun rose to prominence in the 1990s, but never fully recovered after the dot-com bubble burst earlier this decade, and failed to make much profit from software products like Java and Solaris.

Some analysts also say the deal could spark antitrust scrutiny as customers and suppliers raise concerns about competition.

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