Sun Shares Plunge As IBM Talks Stall

Shares of Sun Microsystems were off sharply in early trading Monday following reports Sunday that the company's merger talks with IBM have reached an impasse.

Sun shares were down more than 23%, to about $6.50, in Wall Street's midmorning session as investors laid odds that the company was unlikely to be acquired by its larger rival after all.

Negotiations collapsed Sunday following IBM's tabling of a price that was lower than its original offer and Sun's insistence that it consider other proposals, according to several published reports, all of which cited unnamed sources. Officials for Sun and IBM haven't commented on the issue since the discussions reportedly began.

Complicating the process is a reported split in Sun's board that has put CEO Jonathan Schwartz and chairman Scott McNealy on opposite sides of the table. McNealy is said to be against a deal, while Schwartz reportedly favors an acquisition by IBM.

The termination of the talks erased much of the gains in Sun's share price that have occurred since word broke that the company was seriously eyeing a buyout offer from Big Blue. Sun's stock, long battered by the economic slump and the company's loss of share in some key segments, jumped more than 80% in price on March 18 after both The Wall Street Journal and The New York Times ran stories about the proposed deal.

On Sunday, both papers said the negotiations were in disarray. The Journal reported that the talks were "on the brink of collapse," while The Times declared that "the deal's collapse raises questions about Sun's next step."

Indeed, investors were hopeful that a tie-up with IBM could help Sun better monetize its trove of valuable open source products, such as MySQL, and offset competition from Intel-based commodity servers. Now, all bets appear to be off.

Some analysts believe an IBM acquisition of Sun still makes sense. Sun's proprietary hardware business has all but dried up in the face of competition from commodity players such as Intel and Dell, and it's struggling to keep pace with larger players in the software business, such as Oracle, Microsoft, and IBM itself.

Yet the company retains key, widely used assets, including the Solaris operating system, the open source MySQL database -- which boasts more than 11 million installations -- and the Java programming language.

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