In a preliminary proxy filing with the SEC this morning, Sun Microsystems (JAVA) provides a detailed blow-by-blow accounts of its efforts to find a buyer - and how it reached an agreement to sell itself to Oracle (NYSE:ORCL) for $9.50 a share in cash. The account basically confirms much of what the Wall Street Journal had reported about the company’s negotiations with [[IBM]] - which is not mentioned by name in the filing, but which would appear to be what the filing labels as “Party A.”
A couple of key things emerge from the filing:
- On March 12, Oracle offered to buy certain Sun software assets, in a deal in which it also would have taken a minority equity stake in Sun and entered into “certain strategic relationships.” At the time, Sun was bound by an exclusivity arrangement to negotiate only with Party A - and the Sun board decided to keep negotiating with Party A, effectively turning down Oracle’s offer. Oracle’s original offered followed a February 23 discussion between Sun Chairman Scott McNealy and Oracle CEO Larry Ellison about a possible strategic transaction. The fact that the original bid was for software only suggests the company bought Sun not because of the hardware assets, but despite them. And it suggests Oracle may have doubts about the hardware business, despite its insistence that it intends to hold on to the business.
- Sun apparently had an extended flirtation with a second company - referred to in the filing as “Party B” - which ultimately decided not to make a formal offer for the company. “Our management and advisors urged Party B to make a proposal for a transaction, but Party B did not do so.” The company did at one point sign a confidentiality agreement with Party B.
- The first bid from Party A came in January, and offered $8.40 to $8.70 a share in cash. The offer was later increased to $10, but then reduced to a range of $9.10 to $9.40, with the higher price requiring additional steps be taken to ensure the deal as completed. As the WSJ reported, this was related to IBM’s concerns - er, Party A’s concerns - that the deal could get hung up by regulators.
The identity of “Party B” isn’t clear; the list of likely suspects would start with Hewlett-Packard (HPO), although you could also theorize others. EMC, say. Or Dell (NASDAQ:DELL). Or Cisco (NASDAQ:CSCO).
The filing also lays out in stark terms why Sun decided to sell:
- “Sun’s revenues have deteriorated as a result of decline sIt spending during the current economic crisis,” with the company being “particularly impacted” by its significant exposure to the financial sector.
- Sun’s business is more concentrated than that of its rivals.
- The company is seeing “increased competition in its core systems businesses.” The company said major competitors “have increasingly used their size and services capabilities as leverage for competitive advantage in the market.”
- Investments in new areas, including open source software and the convergence of servers, storage and networking, “have not generated revenues sufficient to meaningfully offset declines in legacy business - declines which have accelerated during the current economic downturn.”
Sun Tuesday is up 6 cents at $8.97. ORCL is off 39 cents, or 2.1%, to $18.17.