IBM-Sun Merger Appears Near -

IBM-Sun Merger Appears Near

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IBM's (NYSE: IBM) acquisition of Sun Microsystems (NASDAQ: JAVA) could be announced Monday, according to news reports — and antitrust issues could be a big factor in getting the deal completed (see Sun Lays Off 1,500 as IBM Merger Looms and Sun Launches 'Open Cloud' as Merger Rumors Swirl).

The Wall Street Journal and other news sources say that after weeks of due diligence, IBM could pay between $9 and $10 a share for Sun. Sun reportedly agreed to take about 10 percent less than initially expected in exchange for IBM's commitment to persevere through any regulatory scrutiny the deal might face.

But on April 5, the Journal reported that the Sun-IBM talks were "on the brink of collapse," threatening to undermine the $7 billion deal.

If the deal goes through, the combined company would have a dominant position in the Unix server market that could face antitrust review — and the two companies could face similar issues in mainframe tape and disk storage, according to Illuminata analyst John Webster.

The Justice Department in the mid-to-late 1990s raised objections to an IBM-StorageTek mainframe disk storage deal. Sun later acquired StorageTek.

While the data storage market has changed dramatically in the last decade, Webster isn't sure the government won't raise similar objections.

He said Sun's mainframe tape storage business "may get pulled out of the deal to be sold to another third party or may face some other restructuring to get around that issue. However, at the moment this is pure conjecture on my part. I found it surprising years ago when the U.S. Justice Department held that mainframe disk was a separate market, distinct from the broader disk storage array segment. Perhaps that sentiment has changed in the 13 or so years since the original DoJ finding."

That is just one issue the deal could face. Forrester Research said a third of Sun's employees could get laid off in the deal. And there's also issues of product overlap and the fate of Sun's open source programs like Open Storage. Webster, for one, thinks IBM will see value in Sun's Open Storage efforts and continue them.

Another company with an interest in the deal is IBM partner NetApp (NASDAQ: NTAP), which is embroiled in a patent dispute with Sun over the ZFS file system.

Even if a deal is announced on Monday, those and other issues will likely take some time to work out.

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