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Technology

IBM (IBM) To Pay Too Much For Sun (JAVA)

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By Douglas A. McIntyre Updated Published
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In a weak economy, troubled companies should never be bought at a premium. No one has mentioned that to IBM (IBM) which is looking at paying $10 a share for Sun Micro (JAVA) which would be almost 100% higher than where the stock trades now. Sun as been an also-ran in the server industry for close to a decade. It is hard to see what strategic value it has to IBM, but the larger company is flush with cash, and may not be able to help itself.

Sun has a long history of M&A activity that has done almost nothing to improve earnings. It has also been adroit at firing people. But, the company has not had any significant top-line growth in years. It has used cash to buy back its own shares. The move has done nothing to keep the stock price up, and, therefore, has done nothing for shareholders the way that a special dividend might have.

According toThe Wall Street Journal, “Acquiring Sun would bolster IBM as it takes on a new rival, Cisco Systems Inc., the networking company, which this week announced that it would start selling a server of its own.”

The investment would seem like an expensive way to pick up market share especially in the server business where machines are increasingly becoming commodities which has to put price pressure on vendors.

For Sun shareholders it does not matter who buys the company. It will end their trail of suffering.

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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