Sun Microsystems’ stock jumped 61 percent to $6 in Frankfurt after morning trading. According to the Wall Street Journal, International Business Machine is offering to pay $6.5 billion in cash, a 100 percent premium over the Tuesday closing price.
Since the dot-com bust, Sun has struggled to find its footing in the new paradigm of open-source software and low-cost servers. Over the last few months, Sun has approached several large technology companies in hopes of being acquired, quoting “people familiar with the matter” by the WSJ.
Although this transaction would bolster IBM against Hewlett-Packard (HP), it would severely hit IBM’s profit margin that currently makes over 50 percent of it earning from services. By acquiring Sun, one third of revenue would be from hardware which has a lower margin.
Is this a good buy for IBM? If IBM can reduce the redundancies and cut costs at Sun, this could be a good buy. What always worries me when melding two very distinct cultures is how they will work together. Time and time again two counter cultures have seen the downfall of good intentions.
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