IBM's offer for Sun stalls - Yahoo and Microsoft all over again?

As details of the broken down talks between IBM (IBM) and Sun Microsystems (JAVA) come trickling out, one can't help but wonder if Sun is making the same mistake Yahoo made by rejecting Microsoft's takeover offer last year.

Just 14 months ago, Yahoo turned down a rich $44 billion from Microsoft (MSFT), which led to co-founder Jerry Yang getting booted from his CEO role late last year. Could the same fate await Sun CEO Jonathan Schwartz after spurning IBM's more-than-generous $7 billion offer over the weekend?

"Sun is now sort of damaged goods," Peter Falvey, a mergers and acquisitions banker with Revolution Partners in Boston told Forbes. "If IBM got under the covers and didn't like what they saw, what does that mean for other potential buyers?"

In a e-mail to DailyFinance, Falvey said Sun needs to decide what's next.

"Sun will have to make the choice of selling in the immediate term or creating a comprehensive go-it-alone strategy," Falvey said . "Whatever it does, it needs to be done quickly."

Calls to spokesmen at both IBM and Sun were not immediately returned to DailyFinance.

Other media reports say that Sun and IBM argued over the price and terms of the deal that would have locked IBM into a stronger commitment and payouts to executives.

As we saw with the broken Yahoo-Microsoft deal last year, executives may be letting their personal demands get in the way of what is best for shareholders. In this case, those holding equity in Sun would have pocketed about twice the value of their shares before IBM came knocking. Yahoo shareholders were also left disappointed last year after Microsoft withdrew its offer.

Sun shares fell 22 percent today, closing at $6.56, following reports that IBM said "no thanks." Unless the companies start negotiating again or another bidder appears, Sun's shares will likely continue to fall.

At some point, company boards need to put shareholders interests ahead of their own. More than a year after Yahoo was left with egg on its face, you'd think Sun executives would not make the same mistake Yahoo executives made.

Sadly for Sun shareholders, history often repeats itself.

Anthony Massucci is a senior writer for Daily Finance. He previously covered technology companies for Bloomberg News.
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