Sun Micro Is Now Trading at Cash

For Sun Microsystems (JAVA), it has come down to this: The stock is now trading for the net value of the cash and investments on its balance sheet.

As of September 30, the company had $2.63 billion in short-term cash and investments. Add in $490 million in long-term investments, and back out $694 million in long-term debt, and you get net cash of $2.486 billion.

JAVA shares today dropped another 44 cents, or 11.86%, to $3.27. Its current market cap: $2.42 billion. Since announcing the headcount reduction plan, the stock is down 19%. Ergo, you in theory could buy Sun today, pay off holders and the debt with the existing cash, and get the entire company for nothing.

Now, I know, I know, that does not include the costs of the company’s plan to cut 5,000-6,000 jobs. So there’s actually less cash to go around than meets the eye. Nonetheless, the stock’s ongoing swoon is a startling reminder that any stock not trading at zero can always go lower.

Comments

[Vladimir Se...:]

Eric,

While I can't disagree that SUN is getting cheaper, I think you're overlooking some things on the balance sheet.
What about short term/current long term debt of 565M, deferred long term liabilities of 541M and other liabilities of 1055M?
So your scenario of getting the company "for nothing" is a bit too optimistic.

I'll give you a better example: TRID.
This company REALLY can be had for nothing.
But they are burning cash, maybe not as much as SUN, but still. And I guess the execs probably have "off balance sheet" parachutes written into their contracts, or maybe there are some other off balance sheet liabilities or poison pills. Otherwise why wouldn't we buy it today, close up shop and earn a huge return overnight?
With institutional holders like Renaissance Technologies it would seem like someone with resources would have done something already if it was actually doable.
So there, you have a much better candidate to take over and "have for nothing", but it still isn't happening.
So SUN is a long way from being "had for nothing".

2008 Nov 20 12:03 AM

[BeachRider:]

Wow, JAVA is under $3 today.$2.84 as this is written. I am very surprised that a 'floor' hasn't setup by now, it has to be that those new expectations of "$3 at year end" are causing a panic. This should really be an M/A target for someone. This really makes the CxO braintrust at Sun look very bad. I used to like Sun and STK, but they have lost a lot of their technical fastball. JAVA cannot hang around very long at these prices.

2008 Nov 21 02:21 PM