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Article

Peeking Through the Keyhole on Sun’s Boardroom

Sun Had a Suitor Other Than IBM and Oracle

Sun had a suitor other than IBM and Oracle.

It says so in its proxy statement where it tells of its blow-by-blow adventures since November 6 when Sam Palmisano, the CEO of IBM, thinly disguised in the account as Party A, approached Sun CEO Jonathan Schwartz about a takeover.

Sometime between November 6 and December 19 Sun approached the unidentified Party B, who was interested but found the timing inconvenient.

On December 19 IBM started due diligence and on January 28 bid $8.40-$8.70 a share cash, then an 80% premium.

While Sun and IBM were holding further discussions, Party B started due diligence on February 18.

Two days later IBM upped its price to $10 a share provided it had dibs.

On February 23, Sun chairman Scott McNealy called his buddy Oracle CEO Larry Ellison. That was the week Sun urged Party B to make a proposal. It didn't.

On February 26 IBM got the exclusivity it wanted. All other discussions were terminated.

Sun says IBM's $10 a share "was predicated on the expectation that the parties would reach agreement on terms and conditions that would provide us with adequate certainty that a transaction, if agreed to, would be consummated."

By April 4 IBM and Sun had hammered out a draft definitive agreement. Sun says, "Our engagement with Party A focused on the need to address issues of transaction certainty." Like crossing the antitrust hurdle.

On March 12 Oracle sent Sun's board a letter proposing that it buy some of Sun's software assets, take a minority piece of the company and cut a few strategic deals. Sun went back to talking with IBM.

Then on March 18 Sun's cover was blown by the Wall Street Journal.

Eleven day later IBM cut its price to $9.40 a share. Sun doesn't say why but says it spent four days explaining "to Party A and its advisors in detail our concerns with Party A's proposal, including, in particular, with regard to transaction certainty and antitrust matters."

On April 3 IBM tightened the screws.

"On April 4 IBM handed Sun two merger agreements, one for $9.10 a share, the other for $9.40 a share, and an ultimatum "that its offer would expire at 6pm that day if one of the two agreements were not executed by us prior to that time."

The deals differed in transaction certainty and Sun says the $9.40 agreement "required us to take certain actions as a condition to Party A's obligation to take certain steps to obtain antitrust clearance, which we had previously communicated to Party A that our management considered impossible for us to satisfy."

Sun decided the IBM deal was too risky and terminated exclusivity.

Back to Oracle and Party B. Party B went back to doing due diligence and Sun reached out to IBM again, meeting with it and reviewing their positions.

Contrary to popular misconception, Oracle started due diligence on April 10. Meanwhile, IBM agreed to re-engage with a four-day deadline. Negotiations centered on price and conditions.

On April 16 Credit Suisse, Sun's go-between, gave Oracle and Party B an ultimatum: come up with a draft agreement by end of day April 17 or else.

Party B withdrew. Oracle anted up $9.50 a share.

Schwartz called Oracle co-president Safra Catz and tried to get Oracle to go higher than $9.50. She blew him off.

Sun's board unanimously accept Oracle's offer. IBM's best counter-offer was $9.10 a share. It sent Sun an agreement through Wilson Sonsini, Sun's outside law firm, with a drop-dead time of 5pm that day. That was Sunday April 29. Sun turned around and signed the deal with Oracle.

See this SEC site for more information.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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