Massucci's Take: Hope Sun has a good plan B

When you're selling your car and someone offers you double what it's worth, you take it.

You don't quibble over terms. You agree on terms as fast as possible. IBM to Sun: I'll give you double what it's worth. Sun to IBM: Where do I sign?

That's how the conversation should have gone in recent days between "I'm Big Money" (IBM) and Sun Microsystems (note the micro). Instead, Sun Micro (JAVA) rejected an offer by IBM on Saturday, people familiar with the situation told The Wall Street Journal, because Sun's board is split on whether or not to make the deal.

Split. Huh. IBM is reportedly offering about $7 billion dollars for a company that was valued at about half that when word first got out that the two companies were in talks. Try explaining that split to shareholders at the next annual meeting. Anyone at Sun remember how Yahoo's rejection of Microsoft's offer turned out?

This must be gamesmanship by Sun to get more assurances out of IBM. Otherwise, rejecting the offer was not, shall we say, smart. Already, Sun lowered the price IBM would have to pay last week as a concession to IBM, which, in return, was supposed to commit to see the merger through even if regulators stymied the deal for months or imposed harsh conditions.

Sun feared IBM may have had too much room to walk away from the deal, the Journal reported Sunday, citing a source familiar with the talks. That issue needed to be worked out in negotiations, and not become the reason to walk away from the deal. The only reason for Sun to walk away from these talks would have been if there was another bidder.

Indeed, all of this may become obsolete if: 1.) There is another company interested in buying Sun for double what it is worth (not likely), or 2.) This is simply posturing by Sun to get better terms from IBM (much more likely).

Ah, but IBM called Sun's bluff by withdrawing its offer (taking billions off the table) for Sun, according to an Associated Press story. Hmmm, wonder if Sun counted on that?

Gamesmanship works if you have a backup plan. Questions for Sun: What's your plan B? Something clever in your hip pocket we don't know about? A surprise suitor waiting in the wings? Now is the time to let your shareholders and IBM know if you do have an answer to any of these questions.

Simply going back to being good old Sun, valued at half of IBM's almost $7 billion offer sure isn't going to make Sun shareholders happy. That's called overplaying your hand. The key to negotiating is knowing what your end of the deal is worth. In Sun's case they have limited moves because IBM and everyone else watching knows what cards they are holding.

The bottom line here: Sun may not be able to get the concessions it wants from IBM because of their limited negotiating power. It's highly likely no other company wants to buy it. Sun has to gamble that the deal would get government approval, while also risking that IBM could walk away. They have little choice. IBM has made them an offer they can't refuse.

Sun can be characterized as a vintage car with unique aspects (its computer server business, much coveted by IBM, and its Java programming language). The problem is, even after a thorough car wash and mean wax and polish on the sunniest day, this car has seen better days. And now, there are few willing to pay double a price that has been depreciating for the last decade.

Sun, which may still have a chance to win this game, should put down its cards and grab the jackpot. Only, of course, if IBM is still playing.

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

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