JAVA Shoots Higher in Europe on IBM Takeover Rumors

Is IBM worried over the recent CSCO announcement ?

March 18 (Bloomberg) — Sun Microsystems Inc. surged the most ever in German trading after the Wall Street Journal reported International Business Machines Corp. is in talks to buy the company for at least $6.5 billion.

Sun Microsystems jumped as much as 61 percent to 6 euros in Frankfurt trading. The offer would value Sun’s stock at more than double the closing price of $4.97 in the U.S. yesterday, the Wall Street Journal reported, citing people familiar with the plan. An agreement may not be reached, the newspaper said. Officials at Sun and IBM declined to comment.

Buying Sun would help IBM widen its lead over Hewlett- Packard Co. in the $53.1 billion market for computer servers. Sun is projected to post its third consecutive quarterly loss as Chief Executive Officer Jonathan Schwartz seeks to weather the global recession by slashing as many as 6,000 jobs and offering lower-priced products.

“It’s the war of the data centers, and an acquisition would leave only two or three players left,” said Robert Jakobsen, a Silkeborg, Denmark-based analyst at Jyske Bank A/S in Denmark. “The stock market has not been too good to Sun in the last 12 months,” allowing IBM to buy it at a discount, he said.

Paying at least $6.5 billion for Sun would be IBM’s biggest acquisition ever. The company bought Cognos Inc. for $4.9 billion last year to compete with Oracle Corp. and SAP AG in providing software that tracks corporate performance.

Fewer Deals

Sun Micro traded at 5.7 euros as of 10:04 a.m. in Germany. IBM declined as much as 1.13 euros, or 1.6 percent, to 68.8 euros in German trading.

Arlene Wainstein, a spokeswoman for IBM in Paris, said it’s company policy not to comment on reports. Shabita Wu, a spokeswoman at Sun in Taipei, declined to comment on the report.

Companies in the technology industry have announced $3.6 billion of acquisitions so far this year, less than a fifth of the value of takeovers they announced in the same period a year earlier, according to data compiled by Bloomberg.

The acquisition would be the biggest in the industry since Hewlett-Packard agreed to buy Electronic Data Systems Corp. for $13 billion in May last year, Bloomberg data shows.

Buying Sun Microsystems would boost IBM’s share of global server sales by 9.6 percentage points to 43 percent, widening the lead over Hewlett-Packard’s 30 percent, according to fourth- quarter estimates at Credit Suisse Group AG today.

Contacting Suitors

Dell Inc. ranked third in the industry with a share of 10.7 percent, followed by Sun and Fujitsu Ltd., according to the report. Global sales of computer servers will probably fall 17 percent to $44.2 billion this year as the global recession drives down demand and prices, according to the Credit Suisse report.

“The bigger you are the better things are,” Nguyen, who has a ”sell” rating on the stock, said Richard Nguyen, an analyst at Societe Generale Securities in Paris

In January 2007, an investment fund owned by Kohlberg Kravis Roberts & Co. bought $700 million of Sun’s convertible notes. James H. Greene Jr., a KKR general partner, has been on Sun’s board since last year. Sun founder and former CEO Scott McNealy is chairman of the company, and its single biggest investor, with about 14.1 million shares as of August last year.

In recent months, Sun Microsystems has contacted a number of technology companies with the aim of being acquired, people familiar with the matter said, according to the newspaper. HP declined the offer, the newspaper reported, citing a person briefed on the matter.