IBM is reportedly in talks to buy Sun Microsystems in a transaction that could be "at least $6.5 billion" in cash and could happen as early as this week, according to a Wall Street Journal report that cites unnamed sources. (Techmeme)
The sources told the Journal, however, that while talks are underway, the deal may not happen and talks could break down. Struggling Sun reportedly has approached "a number of large tech companies" about an acquisition but sources said Hewlett-Packard declined the offer.
The Journal reports:
The deal would mark a sharp break from IBM's recent past. It has been buying software companies and a few service companies in recent years. But it has been selling off hardware operations such as its personal-computer business. IBM gets more than half its revenue from services, and services and software provide the bulk of its profits. Acquiring Sun would make hardware close to one third of its revenue.
IBM has worked hard in recent years to boost its profit margins, and its profits exceed those of the larger H-P. But buying Sun, which reported a $209 million loss for the second quarter ended in December, would hurt IBM's profitability. It would have to slash the combined companies' cost base sharply to gain a favorable reception for the deal from investors.
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. On Monday Cisco chief executive John Chambers said that Cisco would continue to work with IBM despite the fact that the companies would be competing head-to-head on servers. A Cisco spokesperson declined to comment on a potential acquisition of Sun by IBM.
A deal like this would likely be examined closely by regulators as the two have overlapping products lines, notably servers and software.