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Will McNealy Take Sun Private?
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."
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.
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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?
liqbase
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.
It was a clever marketing ploy, they say they'll go private and their stocks spike, they sell some stock and make alittle money. Once people think they were joking, the price will fall. Then they'll surpirse everyone with an actual buyback.
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.
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.
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
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.
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.
Degaussing scares the bad magnetism out of the monitor and fills it with good karma.
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 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) 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.