Sun's share price drops after IBM deal falters

Shares in Sun Microsystems dropped almost 23% after a deal for a takeover by IBM faltered.

Shares in Sun Microsystems dropped almost 23% after a deal for a takeover by IBM faltered at the weekend.

IBM and Sun have been in merger talks for several weeks over a deal, which last week was valued at $9.55 per share.

After a legal review of potential problems, such as Sun's contracts with employees and IBM competitors, IBM reduced the offer to $9.40 per share.

Sun is not generating as much revenue from certain assets as IBM had originally thought, according to insiders, and there is also disagreement about the value of some of Sun's contracts.

But Sun's board is said to have asked for a higher offer and other guarantees. When IBM refused, Sun said it would consider other buyers. This prompted IBM to withdraw the offer on Sunday.

It is not clear whether negotiations will be revived, but Sun's chief executive, Jonathan Schwartz, is under pressure to find an alternative buyer, according to the The Wall Street Journal.

Sun's high-end hardware business has struggled due to the economic crisis. The company has posted losses in three of the past four quarters and last month announced 1,500 jobs cuts as part of plans to slash costs.

According to the Journal, Schwartz had favoured the IBM offer, but was opposed by a board faction led by chairman Scott McNealy, who was pushing for a higher price, said the Financial Times.

If sun fails to revive talks with IBM, Schwartz is expected to look to the likes of Hewlett-Packard and Fujitsu, but expectations remain low that another buyer will be found, the Financial Times said.

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