(Refiled for dropped sentence)
* Southeastern talked to potential buyers on Sun's behalf
* Talks with Oracle began after IBM talks collapsed
* Negotiations led by Sun's Schwartz, Oracle's Catz
* Southeastern stands to lose a quarter of investment
By Anupreeta Das and Jim Finkle
NEW YORK/BOSTON, April 20 Sun Microsystems
Inc's JAVA.O largest investor was an invisible hand that
guided the high-end computer maker's planned sale to Oracle
Corp ORCL.O, people with knowledge with the matter said on
Even though Southeastern Asset Management, which owns 22.3
percent of Sun, stands to lose money on its investment,
analysts say a sale to Oracle at $9.50 a share is far
preferable to waiting for Sun's share price -- which hit a low
of $2.59 last November -- to recover on the Nasdaq.
Memphis, Tennessee-based Southeastern had spent $2.1
billion to buy 162 million Sun shares over some years,
according to regulatory filings. Southeastern would lose
roughly $500 million on its investment under Oracle's deal.
But given the economic recession and Sun's fading glory
from a high-flying tech titan in the 1990s to a company
struggling to cut costs and turn a profit, Southeastern moved
wisely when it adopted a more active role last October.
In an Oct. 22 regulatory filing, the firm, which is run by
prominent value investor O. Mason Hawkins and has $23 billion
in assets under management, said it might go around Sun's board
to talk to "third parties" about alternatives.
"Sun has been a serial restructurer which indicates a
willingness to adjust to market conditions, but my impressions
was that they were always one step behind," said Tom Smith,
analyst at S&P Equity Research. "A new buyer may be able to do
things better with harsher cuts."
Oracle initially expressed interest in Sun's software
assets less than two months ago, said two sources who did not
want to be identified as the talks were confidential. But
challenges of valuing Sun's intertwined businesses made the
board reluctant to sell the company off in chunks, they added.
Sun then entered exclusive talks with International
Business Machines Corp (IBM.N), but they fell apart. Oracle
said on Monday it agreed to buy Sun for $9.50 a share, valuing
its equity at about $7.1 billion [ID:nN20381533].
Southeastern keeps a low profile and prefers to iron out
issues with management through private conversations rather
than a media blitzkrieg.
In January, Sun agreed to appoint a Southeastern nominee to
its 12-member board, former Fannie Mae FNM.N Chief
Information Officer and technology veteran Rahul Merchant.
Merchant was also contacted by private equity firm
Kohlberg, Kravis, Roberts & Co, whose affiliate KKR Private
Equity Investors (KPE) made a $700 million investment in Sun in
2007 in the form of convertible notes, one person familiar with
the matter said.
KKR and Southeastern have been in contact about a strategy
for Sun, said the source.
KKR did not return calls for comment. A Sun spokesman said
the company does not speculate on shareholders' activities.
Sun's board members have spent hours on the phone with each
other in recent months, trying to figure out what everyone had
in mind for the future of the company, the sources said.
What emerged was a consensus that Sun needed to explore
strategic alternatives that would bring maximum value for the
company's strong core assets, whether through a restructuring
or a sale, the sources said.
The company hired investment bank Credit Suisse CSGN.VX
to run the process, sources said. The team, led by star
technology banker George Boutros, sent out feelers to almost
every potential buyer in the industry, one of the sources said,
including Hewlett-Packard Co (HPQ.N), Dell Inc DELL.O, Cisco
Systems Inc (CSCO.O) and IBM.
IBM WALKS AWAY
Soon after, IBM and Sun -- which had held informal
conversations about a partnership on and off for several months
-- entered into exclusive talks in which IBM offered to buy Sun
for between $9 and $10 a share, eventually settling at $9.40,
the two sources said.
But the talks fell apart about two weeks ago when the two
sides could not agree on guarantees that IBM would not walk
away from the deal under antitrust regulatory scrutiny.
Meanwhile, both Oracle and HP, which had also talked to Sun
about a potential deal last year, remained on the sidelines as
interested parties, the sources said. It is unclear if HP,
which is still swallowing its $13 billion acquisition of EDS,
ever made an offer for Sun.
Some members of Sun's board began pursuing talks with
Oracle executives after three-and-a-half weeks of exclusive
negotiations with IBM broke down, while others kept a
discussion with IBM open, one source said.
Late last Thursday, Sun and Oracle began formal
negotiations after the Sun called Oracle and said IBM was "not
doable," one person familiar with the talks said.
With IBM out of the picture, Oracle realized it could get
its hands on Sun's prized software assets for a per share price
in the mid-nine-dollar level, and wouldn't have to bid against
another company, the source said.
"They were lightning fast," another source said of Oracle.
Discussions were led by executives on both sides -- Sun CEO
Jonathan Schwartz and Oracle President Safra Catz doing much of
the negotiating, sources said.
Although Oracle CEO Larry Ellison and Sun co-founder and
chairman Scott McNealy are long-time friends, the two did not
play a big role in negotiations, the source familiar with the
Oracle spent Friday examining Sun's businesses through a
standard due diligence process, spending a lot of time poking
around its hardware business.
The two sides signed on the dotted line late Sunday
afternoon after drawing deal terms up, the source close to the
talks said, adding, "IBM was surprised last night."
(Additional reporting by Ritsuko Ando; Editing by Tiffany Wu,
(Anupreeta.email@example.com; +1 646-223-6224))