|According to street.com (see below)Schwartz was in favor of the acquisition, McNealy was opposed. I agree, it is most unlikely the talks breakoff was posturing or tactics. Nonetheless, IBM deal still a possibility, I think. We'll see. Best, Mark |
Market Movers by Will Swarts (Author Archive)
3 Stock Picks: JAVA, MGM, DNDN
Merger Move Hurts Sun Shares
Investors sold Sun Microsystems (JAVA: 6.54*, -1.95, -22.96%) after weekend boardroom moves endangered a $7 billion merger with IBM (IBM: 100.65*, -1.57, -1.53%).
Sun’s board of directors rejected IBM’s formal offer on Saturday, which prompted IBM to withdraw its bid the next day, according to The Wall Street Journal. Sun shares plunged Monday on news of the deal falling through and problems between Chairman and Co-founder Scott McNealy, who opposes the buyout, and CEO Jonathan Schwartz, who favors the merger. The company declined to comment on the reports.
Analysts applauded the deal when it was unveiled March 17, though some saw it as an attempt by IBM to block competitors, rather than being fully ready to integrate Sun into the business.
Meanwhile, IBM appears to be in for a tough 2009, regardless if the deal goes through or not. Canaccord Adams analyst Peter Misek said IBM’s business computing services division could be in for a weak quarter. The group, which emphasizes services and software, rather than capital expenditures for new equipment, has been a critical part of the company’s steady showing even in the midst of recessionary cutbacks. Misek on Monday cut his rating on IBM from Buy to Hold. He kept his 12-month target price at $110 a share.
“The share price has performed well during a volatile bear market,” he wrote. “And while we continue to believe IBM is one of the more defensive names within the technology sector, the risk-reward level is more balanced with less than 8% return to our target price.”
Bottom Line: Hold
Betting on mergers is always risky.