Remembering Apple's fizzled buyout

Looking at Microsoft's hostile takeover move for Yahoo, brings back memories of the time when Apple management sought its own buyout. But the corporate "saviors" had cold feet.
Written by David Morgenstern, Contributor

Looking at Microsoft's hostile takeover move for Yahoo, brings back memories of the time when Apple management sought its own buyout. But the corporate "saviors" had cold feet.

In the summer and fall of 1995, Apple executives were in a state of siege: sales of new Mac models were looking up, but the release of Microsoft's Windows 95 was considered the final straw for the Mac in business markets; the development of Copland, the rewrite of the Mac OS, was wandering and its release date kept slipping; users were confused about the company's OpenDoc component-software container architecture and developers wondered how it would make them a buck; and executives and scientists were heading out the door.

Sightings of Sun Microsystems' executives were frequently seen in Cupertino. The rumor was that Apple was in discussions with the workstation company to buy some or all of Apple.

This was before the return of Steve Jobs and the deal with NeXT. The CEO at the time was Michael Spindler, who had been in charge of Apple's European division before taking the helm.

In late January, the deal was declared dead following a contentious shareholder meeting. It appeared that Apple's loss of $69 million in the previous quarter, something that Sun must have seen beforehand, as well as the usual strategic gamesmanship in such negotiations, had been too much for Sun.

Here is part of the cover story in the January 29, 1996 issue by then MacWEEK business editor Jon Swartz:

However, MacWEEK has learned that, as of press time, Apple and Sun are not close to signing a deal, much less setting a price for the stock. In fact, despite published reports, even relatively simple matters, such as which parts of Apple's business Sun would be interested in acquiring, have not been settled.

Sources close to the company said Apple is continuing discussions with several suitors and potential strategic partners and that no option, including remaining independent, has been excluded.

A former Apple executive said top management had been overly confident that a deal with Sun was at hand and failed to develop a complete restructuring program in case the deal fell through by the end of 1995.

Apple's $69 million loss last quarter set back the Sun negotiations, and Apple had to scramble to restructure, sources said. The result was an incomplete plan.

That same week, a financial analyst downgraded his rating on Apple stock, the story continued:

... after what he called an "anemic" message from Spindler about the company's restructuring plans, said Apple desperately needs a new management team with a focused strategy. "What I want to hear from Apple is this: They will go after clone makers boldly, leverage Copland and OpenDoc, and manage their channels better," he said. "They have no plan."

Some industry watchers felt there were synergies in the pairing. Sun had great server technology, a cross-platform development strategy in Java, IT creditability and a reliable Unix-based OS. But its vision for consumer and wider-market client computing was around the concept for a the thin-client Network Computer. On the other hand, Apple had a great but aging client OS, long experience with end-users, solid customer bases in the education and content markets, and a robust peripherals business.

In addition, Apple's position as the only mass-market alternative to the Wintel platform wasn't lost on Sun insiders. If the Mac didn't survive then Sun could be next, the common wisdom went. Sun, like Apple, had its own RISC processor alternative to the Intel standard (SPARC and PowerPC, respectively). Sun partisans considered Apple has the first line of defense against a world completely overrun by Intel and Microsoft.

In that same issue, Mark Hall, then MacWEEK editor in chief, offered his editorial take on the story. He had previously worked at Sun for 5 years and written a book on the company.

He said that takeover talks, such as that of Sun and Apple, often made a lot of sense but were by definition worthless.

It also makes a lot of sense for Microsoft Corp. to buy Intel Corp., or vice versa. Is either deal likely to be completed? Who knows?

This much we do know: Executives at Apple and Sun have had discussions that involve establishing the value of all or part of Apple's operations. Apple has had these discussions before with other companies. Sun has had similar discussions with other companies. It happens all the time. It's the way business is done these days. People buy. People sell. Companies come and go. But keep in mind that there are always far more discussions than deals.

What makes this round of "what-if" conversations fascinating to so many people is the sad state of Apple's balance sheet. Had the company been able to show a decent profit last quarter, the brouhaha about (insert company name here) gobbling up Apple would not be so loud. Apple's management compounds the problem by offering a less-than-comforting plan to rescue itself from, well, itself.

Part of the problem is Apple's so-called restructuring. Industry observers and shareholders alike say they believe Apple's latest plan is too little or at least too much of the same old stuff that hasn't worked before. Worse, Apple's top brass hint openly that more changes are in the offing. Well, what are they? You get the idea they just don't know. It's no wonder that people pin their hopes on the arrival of a white knight that can truly shake up the company.

Whether Apple is finally sold to Sun or anyone else is almost beside the point. The market is looking for a dramatic change at Apple, and it has not seen it.

The layoffs don't seem to go deep enough. Cutting the admittedly huge panoply of Mac models doesn't seem that significant. Shuttering eWorld is no real surprise.

And when top executives claim they can bring Apple out of its doldrums by making product planning more efficient, they begin to sound like politicians in an election year describing how they intend to balance the budget. None of it seems to ring true.

(eWorld was Apple's private portal network that had been offered to consumers. The Internet ruined all the business plans for those services.)

Hall said that the concern of the market and partners that Apple might go out of business was nonsense. Instead, he suggested that the lackluster leadership that Apple management showed in its response to the rumors (and concerns about execution) was hurting the company and the Mac market.

No, the tragedy is that Apple's top management and board let rumors grip them by the throat. They hurt their own credibility and the company's fortunes at every turn.

Not only do their plans for salvation seem half-baked, their public pronouncements are contradictory.

Everyone gets confused when the company chairman says, "Apple is not for sale," and the next minute offers a standard "no comment on rumors" statement. What is he saying? I asked those who should know inside Apple. They told me "No comment."

Gee, thanks.

It's no wonder the rumors spread. They seem to have more substance than what Apple management has to say. They also seem to offer the only hope.

Of course, the current situation between Yahoo and Microsoft is completely different. Yahoo management balked at the deal and Microsoft finally went direct to shareholders with the offer.

Still, will such a combination really raise the position of Microsoft/Yahoo against Google? Do either companies have a strategy that can be executed? Will any of this deal actually increase shareholder value? That is unknown.

There is at least one place where the comparisons between Apple/Sun and Microsoft/Yahoo deals can be made: then as now, shareholders and the market expect big changes. Quickly, and for better or for worse.

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