IBM close to Sun takeover

IBM is reportedly in the final stages of takeover negotiations with Sun Microsystems and is expected to reveal details of a cut-price deal in the coming days.

According to press reports, IBM has lowered its offer to USD9.55 per share, down roughly USD1 from earlier offers. Though the terms are not yet final, Sun is reportedly willing to accept the lower price in exchange for stronger guarantees from IBM. This will restrict IBM's ability to back out of the deal, even if it is subject to intense regulatory checks, reports the Wall Street Journal (WSJ).

News of the negotiations first emerged last month, with reports putting a price tag of between USD10 and USD11 per share on Sun. Even the reduced rate of USD9.55 per share amounts to a total of USD7.1bn and is a 92% premium on Sun's closing share price on March 17, the day before news of the talks were made public.

A deal between the two firms would establish an IT powerhouse and help IBM pursue its long-term goal of chasing higher profits from software and servers, competing against rivals such as Oracle.

However, commentators argue that the deal could be blocked by anti-trust regulators. If passed, the deal may come with heavy restrictions to protect against the merged company becoming too dominant in the server and storage markets.

Together, Sun and IBM would have a virtual monopoly on tape-based storage devices, reports the WSJ, and may be forced to sell or spin off some of these units. Sun also has an estimated 65% of the Unix server market, although this is reportedly in decline and is under pressure from new competitors in such as Cisco.

Dell last week backed a deal between IBM and Sun, claiming it would give Dell a valuable chance to gain a greater foothold in the corporate server market. Dell founder Michael Dell argues that it would cast doubts over the future of Sun's Solaris-based servers and would, in turn, drive migration to Dell’s own x86 servers.