Mark my words: If IBM pays $6.5 billion to acquire Sun Microsystems, it will go down as a colossal blunder.
But that's how much Big Blue has offered in cash to buy the troubled enterprise server maker and Java creator, according to the
Wall Street Journal. That amount -- reportedly $10 to $11 a share -- is more than twice Sun's Tuesday closing price of $4.97.
No amount of imagined "synergies" can offset the cost of paying double what a company is worth, especially when that company has a notorious history of being unable to adequately monetize its own innovations. (Remember when Java was going to run Microsoft out of business?)
The rumored deal is being greeted with a distinct lack of enthusiasm on Wall Street, at least on the IBM side of the ledger. Big Blue shares were down 91 cents to $92 at market's close today. Naturally, the overpriced potential acquisition has sent Sun shares through the roof as investors try to get a piece of the action. Sun's stock climbed as high as $9.97 today (a price it hasn't seen since last August) before ending at $8.85, a 78% gain. If this deal falls through, a lot of investors who jumped on Sun today are going to regret their one-day bout of irrational exuberance.
The Internet today is full of analyses speculating how the companies' different products, services, pipelines and cultures would mesh. Here's one from
BusinessWeek. Here's another from
MarketWatch. Here's another from the
New York Times.
The trouble, of course, is that it's all speculation. If, if, if. Indeed, the subhead of the MarketWatch article says it best: "Analysts say deal could work if Big Blue can monetize Sun's technology better."
Seriously, let's stop and think about this. The deal
could work
if IBM can do something Sun itself has been unable to do. And for that chance IBM is willing to make the biggest acquisition in its 100-year plus history, paying twice what the target company is worth?
I've also read speculation that the potential deal is a defensive move on IBM's part, a purchase intended to help it do battle with Microsoft and head off a Sun acquisition by Cisco or HP. I can't think of a more foolish reason to make such a huge purchase -- and to overpay at that! You acquire companies because you think they will help your business, not to prevent a competitor from snatching them up.
Finally, in the long history of mergers and acquisitions, few turn out as expected, even if they're not at the disaster level of AOL-Time Warner or Sprint-Nextel. IBM executives certainly must know that. Which leads me to wonder if this is a feint, a move designed to freeze other potential acquirers or to force them to overpay for Sun. If so, excellent gamesmanship, Big Blue. If not -- and if IBM really did offer twice what Sun is worth -- well, tough times call for bold moves, not stupid ones.
Comment and Contribute
