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Sun Microsystems Businesses

Will McNealy Take Sun Private? 203

Posted by CowboyNeal from the going-back-underground dept.
krygny writes "There is speculation that with $7.5 billion in cash, and liquidation of other assets, Sun could leverage a buyback of all publicly traded shares of SUNW at between $5 and $5.50 per share. I suppose, that would relieve them of Sarbanes-Oxley requirements, which Scott McNealy never really liked. (Who does?) For anyone at Sun who survives the tumult, hopefully, there could also be a return to the former corporate culture."
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Will McNealy Take Sun Private? More

Will McNealy Take Sun Private?

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  • Will McNealy Take Sun Private? (Score:4, Informative)

    by Anonymous Coward on Saturday April 30, 2005 @09:41AM (#12391791)
    No. [channelregister.co.uk]

  • Already debunked. (Score:5, Informative)

    by ajlitt ( 19055 ) on Saturday April 30, 2005 @09:42AM (#12391795)
    http://theinquirer.net/?article=22920 [theinquirer.net]
  • ...instead of their investors.

  • Sun's already denied it (Score:4, Informative)

    by Brento ( 26177 ) <brento.brentozar@com> on Saturday April 30, 2005 @09:42AM (#12391798) Homepage
    They've already called it "a joke":

    Sun Micro President Denies Report of Plan to Go Private [cnn.com]
    • No kidding. It would just speed up Sun's demise. At least if you got fat pockets, you will live at least a little longer.

      Of course, if he has Sun buy back all shares, hah he could cash out his own. hah If I had Sun stock, I would be selling.

  • Already denied by McNealy ... (Score:3, Informative)

    by 68kmac ( 471061 ) on Saturday April 30, 2005 @09:42AM (#12391801) Homepage

    As anyone going over to Google News [google.com] can easily find out, this as already been denied by Mr. McNealy himself ...

    See Forbes [forbes.com], for example.

    • If people genuinely believed that sun were prepared to pay $5+ to buy back stock then the price would probably rise above that.

      Granted i'm no financial expert but if you intend to buy a huge pile of stock, it's best to keep it on the downlow so that rumours dont push the price up.

      • Well you start small. There are rules though. Once you own some amount of a company (IIRC 5%) you have to file paperwork saying what your intents are. This paperwork is public, all investors in the company will know when you reach 5%. (at 20% of the stock you are considered an insider and you need to file paperwork for every sell or buy. So some such rules that those who have a hope of getting this much stock know, but the rest of us don't care about)

  • Talk on the street... (Score:5, Interesting)

    by PoiBoy ( 525770 ) <brian@poihold[ ]s.com ['ing' in gap]> on Saturday April 30, 2005 @09:45AM (#12391810) Homepage
    The consensus among traders seems to be that this was nothing more than a brilliant hoax by a hedge fund manager.

    Although Sun does have a sizeable cash position, the underlying businesses are not terribly strong. Moreover, any buyout firm would need to work amicably with McNealy, which is no small feat.

  • Hoax (Score:4, Informative)

    by c0l0 ( 826165 ) on Saturday April 30, 2005 @09:55AM (#12391849) Homepage
    This is supposed to be some kind of business-Hoax thought up by a bunch of hedge-fonds-managers to fool investors, as heise.de [heise.de] pointed out already yesterday.

  • Every few months (Score:5, Informative)

    by selil ( 774924 ) on Saturday April 30, 2005 @09:59AM (#12391863)
    This rumor circulates every few months. In the three years I worked at Sun it popped up at least every six months. Especially after donut Wednesdays went away. There alwasys seem to be this talk about the stock being substantially worth less than the assets of the company. Wasn't that what all those stock buyouts in the 80's were about? Buying companies for their assets versus their worth as a producer?

  • Buying back (Score:4, Interesting)

    by LiquidCoooled ( 634315 ) on Saturday April 30, 2005 @10:00AM (#12391865) Homepage Journal
    I realise that this particular situation is a hoax/joke, but I have a question regarding the actual buyback process.

    What happens if some stockholders DON'T want to sell?

    Can they hold up the process indefinately?

    • Re:Buying back (Score:5, Informative)

      by tackaberry ( 694121 ) * on Saturday April 30, 2005 @10:22AM (#12391941)
      Not really. Once they gain control of like 90% of the shares, they would use various methods to squeeze out the disenting shareholders. Once of which is to do a reverse stock split.

      For example, the company will exchange 1,000 old Sun shares for 1 new Sun shares. If a shareholder has 200 shares, then this is not enough to exchange for a new share, and they get cashed out.

      • Re:Buying back (Score:3, Interesting)

        by darkov ( 261309 )
        Do they have to do that? In AU they have provisions where if you make a takeover bid and get 90% of the stock the other 10% have no choice but to hand over the shares. It fixes up people who don't know about it, etc.
    • I think once you control the company, you can force a buy-out.

      C//
  • That sounds more like pie-in-the-sky wishful thinking.

    While I would love to see something like that
    happen myself the likely hood of McNealy turning
    the ship around let alone keeping it afloat is
    less than likely since he's the problem not the
    solution.

    I can see a future where Sun's hardware business
    dies and Java is bought be another company which
    makes Sun the next SCO.

    • I can see a future where Sun's hardware business dies and Java is bought be another company which makes Sun the next SCO.

      Has Sun ever made so much as a wooden nickel on "Java"? They've been giving away [for free] the virtual machine, the "compiler", and the libraries since Day One.

  • Who like Sarbanes-Oxley? (Score:5, Insightful)

    by koehn ( 575405 ) * on Saturday April 30, 2005 @10:09AM (#12391895)
    I, as an investor, think Sarbanes-Oxley is a Good Thing(tm).

    Of course as a consultant I think it's friggin' awesome!

    • Laboring under the yoke and lash of Sarbanes-Oxley (Score:2, Interesting)

      by Anonymous Coward
      Friggin' awesome?

      I, as a corporate droid who has spent the last year and a half dealing with the bullshit that SOX is making my fortune 100 company go through, do NOT think that SOX is friggin' awesome.

      Friggin' annoying, maybe.

      Of course, it got me a nice chunk o' change last year for a performance award, but now it's becoming a royal PITA.
    • SOX is a perfect example of congress making something worse..if they had merely appropriateed an extra 50 million to prosecute ceos,it would have done everything sox was soupposed to do, without all the garbage SOX is really amazing - Problem: big accounting frims are colluding with companies to put out false info Solution: add huge numbers of onerous rules that are to be checked by....accounting companies !!!
      • Actually, that's not true. SOX has little to do with CEOs and a lot to do about proper accounting... not just of financials but other systems integral to making a business work. I've worked on R&D portfolios ("tell me what we're budgeting for all R&D projects scheduled to come to market in 2008") and systems that let suppliers offer discounts to retailers. Both of these really needed proper accounting of whom can see what, and SOX was the reason that the accounting was actually built (instead of bei

  • public vs. private (Score:5, Insightful)

    by slam smith ( 61863 ) on Saturday April 30, 2005 @10:12AM (#12391907) Homepage
    I've often thought that if I ever started a company, that I would vastly prefer to keep the company private. The requirements on public companies are so onerous that I just don't see how it is really worth it long term. It forces you to look at the short term only. And the expenses of stuff like Sarbanes-Oxley are just drains on productive company activities. (Talk about making the problem worse. Sarbanes-Oxley is nothing more than a cash transfer from productive company activities to public accounting firms and lawyers. ) The only time I can see going public is when I was ready to "cash out".

    • Re:public vs. private (Score:3, Informative)

      by SunFan ( 845761 )

      It depends. As a private company, customers have to accept your word, but as a public company customers can look at the SEC filings to see if you are bleeding dry or doing well. Neither is better--it depends on the business.

    • Re:public vs. private (Score:5, Interesting)

      by fermion ( 181285 ) on Saturday April 30, 2005 @10:44AM (#12392028) Homepage Journal
      I have worked for small and medium sized companies, both private and public. Private firms, to be honest, are not necessarily more short term than public. Both must make money, and with a private firm the money must be made by selling services and products now. Even if a private firm has a long term outlook, the money for developing new products must either come from the preexisting wealth of the owners or current sales. In all cases the persons who control the firm decide if the company is short or long term, either the owners or the board.

      I think what is different is that public firms see the primary product as stock, which is an artifice with no intrinsic value, where private firms are more likely to see the products as a the more or less tangible goods and services provided to the customer. Therefore most effort will be put into providing and developing those goods and services, rather than just manipulating the stock price.

      What we were seeing in public companies was extreme short term behavior. Firms were able to create extreme growth in stock price, without a congruent growth in sales or availability or even the tangible portfolio of goods and services. Therefore investors who were short term could profit but long term investors, like the employees who had pensions in the firm, were sure to lose everything.

      The reforms, far from being a cash transfer from productive activities to accountants, were necessary to insure that long terms investors would be protected. The average investor themselves have demanded the regulations to make sure that they can be sure the companies books are honest. It is a critical development if the 401K and 403B is to continue to pump money back into R&D. It is a critical development if the Bush private accounts, no matter how inane, are to be possible.

      • The so-called reforms include criminal penalties for executives. They are required to claim that the company's financial reports are true, and if they're wrong they can go to jail. So, they now have to choose one of the following three: 1. Risk jail time. 2. Waste a lot of time ensuring that their underlings aren't lying to them. 3. Quit. Honest CEOs must choose 2 or 3. Dishonest ones already face #1, so they're not affected. None of the three options help the company.

        Sarbanes-Oxley is similar to the broke

    • Re:public vs. private (Score:4, Interesting)

      by nelsonal ( 549144 ) on Saturday April 30, 2005 @10:50AM (#12392056) Journal
      One big advantage for public companies was the shifting of employee compensation from your income to the shareholders through employee stock options. That benefit was huge for a ton of public companies, look at microsoft's income statement from three years ago and today for an example of how much of compensation was shouldered directly by the shareholders. As the value of that benefit declines following options expensing, I'd expect more companies that didn't need to raise money in the first place (why companies are supposed to go public) to go back to being private. As far as timing, the shift probably won't occur until equity prices have reverted to a level below their historic mean. This will probably occur as the boomers start retiring and they sell their equities to fund retirement.
      • Tthe main reason for a company to have an IPO is simply that it gives the owners a chance to sell their share on the open market. For example, Microsoft has never needed to raise money from the stock market, but Bill Gates needed the IPO so that he could spend his billions. The same applies to Google, and many other companies.

        This works especially well (for the original owners, that is --- not for the people who buy shares on the open market) when there's a stock market bubble. But even if there wasn't, th

      • One big advantage for public companies was the shifting of employee compensation from your income to the shareholders through employee stock options.

        That's not really true, the market didn't value diluting the stock in that way (and, in many ways, still doesn't). So the companies went from paying employees to not having to do so (or paying them much less anyway). It's like if you throw away a million dollar painting, and I "pay" for a local housing project with it (wow, I'm a nice guy :) ... you didn

    • If you want to grow a company to be very big very fast, like Google, you are going to have to go public, period. There is no other way to raise that much cash that fast. No bank is going to lend you the money, they aren't in the business of funding business plans anymore, they have moved on to secured lending like mortgages and car loans. VCs will fund you but they only do it to cash out in one fell swoop later, which requires an IPO. They also won't give you the sheer volume of cash needed to get big fast.

      • If you want to grow a company to be very big very fast, like Google, you are going to have to go public, period. There is no other way to raise that much cash that fast. No bank is going to lend you the money, they aren't in the business of funding business plans anymore, they have moved on to secured lending like mortgages and car loans. VCs will fund you but they only do it to cash out in one fell swoop later, which requires an IPO. They also won't give you the sheer volume of cash needed to get big fas

        • They didn't offer shares to their employees when they were private? I don't know, but I'd be surprised if they didn't.

          I wasn't specifically referring to Google at this point, and of course any private firm that offers shares, is doing so because it hopes to IPO one day.

  • These are never fun for the employees (Score:5, Interesting)

    by dnaboy ( 569188 ) on Saturday April 30, 2005 @10:25AM (#12391952)
    A significant number of companies have pulled such manuvers. On paper all it takes is some cash and some serious balls. The problem is if you manage to pull off a leveraged buyout, you end up with a ton of debt.

    According to yahoo finance, SUNW has about 3.15 billion in cash (some of those other assets in the 7.5billion mentioned above are going to be hard to sell. They may be decent collatoral for a loan, but they don't, in and of themselves, free up cash), and 1.12b in long term debt. If they buy at 5.50 (which is probably as low as they could possibly pull it off for) the price would be 18.5b. This would leave them with 16 or so billion in debt.

    Interest on this alone would be about 800 million per year, wiping out all of this year's real (not EBITDA) earnings.

    The only way to solve that issue is to sell assets, cut costs (including labor) and cross your fingers. Sun would definitely be a miserable place to work for some time to come.

    For anyone that's interested, the book 'Barbarians at the Gate' is a great read on the subject, following all of the players in the leveraged buyout of RJ Reynolds in the late 80s.

  • This is going to be cool (Score:5, Funny)

    by ded_si_luap ( 846428 ) on Saturday April 30, 2005 @10:29AM (#12391966)

    Sun colapsing into itself - the creation of a black hole within our own galexy!

    Investors on the event horizon won't know if they're falling in or not.

  • That's easy: (Score:4, Funny)

    by santos_douglas ( 633335 ) on Saturday April 30, 2005 @10:29AM (#12391969) Journal
    I suppose, that would relieve them of Sarbanes-Oxley requirements, which Scott McNealy never really liked. (who does?)
    CPA firms and recently graduated accounting students.

    • Re:That's easy: (Score:1, Insightful)

      by Anonymous Coward
      CPA firms and recently graduated accounting students.

      And employees who don't want their IRA/401K to disappear, shareholders who don't want to be used for their money, and customers who want what they pay for without getting ripped off.

      Accountability and responsibility are good things.
  • I thought we were talking about our friend the sun in the sky. I would have lost all hope of the survival of humanity with these privatizations and patent laws.. oh wait..

  • SGI has too much cash. Novell has too much cash, Microsoft has oodles of cash. There are lots of companies that have this problem. If you spend cash to buy assets, those assets have to have a reasonably fast return or Wall Street will skewer the buyer.

    In a less shaky economy, where your next dollar or euro or pound or yen or shekel of profit were clear, you'd be spending them. But it's not clear, because of lots of ennui in the market place. Corps are stagnating, playing only to Wall Street and their opt

    • A company like Sun, with tens of thousands of employees, has an incredible burn rate with regards to compensation, benefits, etc. Sun could easily go broke in a few years unless revenues ratchet up. Novell, SGI etc are in a better position by virtue of having few(er) employees, so their burn rates are not too bad. Microsoft is in a class all its own, the annual interest alone from their horde is larger than the cash balance of many firms with as many employees. It will take a very long time for MS to die.
    • Soon the dollar is going to be like the lire.

      You mean the US will sign the Maastricht treaty and adopt the Euro?

  • Do you honestly think McNealy is going to admit it (Score:5, Interesting)

    by Anonymous Coward on Saturday April 30, 2005 @10:56AM (#12392084)
    McNealy may have debunked this yesterday, but if he is thinking about it do you honestly think he is going to answer "yes, I am looking into taking the company private"

    Thats just an invitation for traders to push the price up before he gets to make a bid - corporate raids like this have to be executed quickly.

    It would make sense for Sun to go private though, as long as the stock market expects than to behave like a Dell and produce incremental growth every quarter rather than the R&D firm which has peaks and troughs that they are its going to be a nightmare for them. They appear to have halted the slide, they just need to start regaining customers now.

    And like it or loathe it, Solaris 10 is damn impressive, the opterton boxes are very cool - and we have yet to see the Andy Bechtolsheim [wikipedia.org] designed boxes (Bechtolsheim is a visionary and could turn Sun by himself - he was one of the first investors in Google back in 1998, silicon valley legend says that he cut a cheque for 200k on his doorstep when he was first approached by Brin and Page, he founded Granite systems (sold to Cisco for 220 million) and headed up Ciscos gigabit networking businesss) and the teasers about the Niagra chips (e-week article /. managed to miss my submission of [eweek.com]) sound very interesting.

    They have a hell of a lot of clever people working there, its just the management layers that are a bit of a problem - from what I've heard the problem is in the middle management layers, and the useless idiots they have in sales and marketing, not at the top with the possible exeception of McNealy.

    • solaris 10 is not all that cool because all promised parts of it haven't been released yet: where is ZFS, Janus, where it the opensolaris that complements it? There's all kinds of issues running legacy 32 bit applications on it, and even more tangled ones trying to port 32 bit apps to be 64. Have you looked at the expansion slots & disk bay counts for Sun's opteron boxes? bleh.

      • Re:Do you honestly think McNealy is going to admit (Score:1, Interesting)

        by Anonymous Coward
        on top of which all the galaxy boxes look to be slipping in schedule, with at least one line being cancelled outright. What kill sun is their current engineering cycle.
        1. develope a product.
        2. one month before release, find out what customers need.
        3. Re-engineer product to meet customer expectations.
        4. Watch market errode to competitors as you re-develope box and try to convince customers that you are still relavant.

  • Private rocks sink as fast as public rocks... (Score:3, Insightful)

    by mschaef ( 31494 ) on Saturday April 30, 2005 @12:05PM (#12392399) Homepage
    This would not change much about the company's situation. Sun's biggest weakness is that they're selling custom, 'high-end' hardware into a commodity market, all the while undermining that business with cross-platform Java. The ownership of the company won't change any of this. Thus, SUNW is a bad investement, even for Sun itself.
    • How are their Opteron servers and UltraSPARC IIIi servers "custom, 'high-end'"? They aren't even expensive. Linux is fully supported on the Opterons.

  • Often where there is smoke there is fire and in many of these types of deals, early denails later prove to be false.

    If it happens, McNealy will be gone, 50% headcount reductions will happen at the minimum, and every product line that does not translate into short-term gains will be axed. I would expect and long-term architecture plans to be shelved, an emphasis on squeezing money from Java, and some changes in how the products are marketed.

    Private equity firms typically want to bring the company back to an

    • Big business doesn't run Sun's free enterprise java server, they buy Weblogic and others instead (can't give the shit away). Other companies already make jvms. Sun has no way to make short-term money from java. They should turn over java to a standards body and thus rid themselves of an unprofitable money sinkhole.
  • Private companies that do services for a public SOX compliant company have to get SAS70 certification in many cases. SAS70 is SOX for the private sector, for the most part. Since Sun has convinces it's customers to outsource to them, Sun would still have to get SAS70 certification.
  • It will not relieve them of Sarbanes-Oxley requirements if they are a government contractor. Private companies that are contractors are bound by SOX requirements.

    I suppose it's possible they don't have any government contracts, but I'd be surprised if that were the case.

  • What Scott Blew (Score:3, Informative)

    by randall_burns ( 108052 ) <randall_burns AT hotmail DOT com> on Saturday April 30, 2005 @03:47PM (#12393440)
    I worked for Sun in the late 80's/early 90's. At that point, McNeally had the trust and respect of a lot of bright folks. I don't think that is the case any more. When I've interviewed folks that have more recently come of Sun-it just isn't like it was in the old days.
  • Someone should get a rumor going that Apple is buying Sun.

    Then Steve can make a remark to a journalist that the only reason to buy Sun would be for the office space in the Valley.

    Old wound but I'm still bitter about that one...
  • Know what would be funny?
    If McNealy takes Sun private, then waits a year and goes fucking IPO on us.
    It would be the next coming of Christ - Sun, inventor of Java and profitable (hint : wait until Sun has a profitable quarter to do this) for a tech company ... and then they could pull that stunt Google pulled where they did a Dutch auction of stock prices ... they would make so much money, and maybe even start a new revolution, the tech boom second generation!
  • My current job is a direct result of Sarbanes-Oxley. The position (sysadmin) was opened up because the IT manager was the sysadmin, but because of SOX, had to take a "hands off" approach to the systems. This created a job position for me.

    So, it's not *all* bad. ;)

    it's also nice because when engineers come over and say "Hey, I NEED to have root on that (production) box to test things because it's more convenient than working on it in the lab...." I can say "No. Sorry. Sarbanes-Oxley regulations. No root fo

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