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."

Comments

Will McNealy Take Sun Private?

[Anonymous Coward]

No.

Re:Yohoo!

[Masq666]

There's a lot of people that care about what happens to Sun, theres no need to flame just because you dont care about Sun.

Already debunked.

[ajlitt]

http://theinquirer.net/?article=22920

Re:Already debunked.

[CSMastermind]

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.

Re:Already debunked.

[loose canons]

You might have been just guessing or you might know something...I had to mod you insightful after I checked the weekly chart for SUNW...it happened just like you said.

Re:Already debunked.

[John Whitley]

they say they'll go private and their stocks spike, they sell some stock and make alittle money

Really? Do you have any way to back that up? If so, some fine folks at the SEC would be deeply interested. Insider trading is just a wee bit illegal.

Sun's already denied it

[Brento]

They've already called it "a joke":

Sun Micro President Denies Report of Plan to Go Private

Already denied by McNealy ...

[68kmac]

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

See Forbes, for example.

Talk on the street...

[PoiBoy]

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

[c0l0]

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 pointed out already yesterday.

Every few months

[selil]

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

[LiquidCoooled]

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

[tackaberry]

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

[darkov]

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.

Who like Sarbanes-Oxley?

[koehn]

I, as an investor, think Sarbanes-Oxley is a Good Thing(tm).

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

Re:Who like Sarbanes-Oxley?

[cinnamon colbert]

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 !!!

Re:Who like Sarbanes-Oxley?

[koehn]

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 being swept under the rug, as so often happens in business application development).

SOX helps to protect investors from some schmo in IT selling secrets to select investors (not you). In that, it's truly valuable.

public vs. private

[slam smith]

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

[SunFan]

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

[fermion]

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.

Re:public vs. private

[nelsonal]

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.

Laboring under the yoke and lash of Sarbanes-Oxley

[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.

Re:Laboring under the yoke and lash of Sarbanes-Ox

[koehn]

That's why I love it as a consultant! Your PITA is my $$$! SOX is the ISO-9000 of the 21st century! Woohoo!

These are never fun for the employees

[dnaboy]

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

[ded_si_luap]

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:

[santos_douglas]

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:Meh

[Anonymous Coward]

This is one thing that bugs me. Sun's strategy is looking two and more years out, but the investors care only about the next three months. One advantage of going private would be getting those asshole analysts off their backs, I guess, but the costs might be too much. I'd much rather see them put that money into R&D. They have three CPUs in the pipeline now (USIIIi+, USIV+, Niagara), and getting them to market sooner is always a good thing.

Of course he's going to deny it

[grahamsz]

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.

Lots of tech corps are asset-heavy/price-low

[postbigbang]

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 options packages, not to general stockholders. Their guts are gone. Now, entrepreneurship is found in the ASEAN countries, and in odd places like the Ukraine and Slovenia. These guys are afraid to move, not because of SarBox, but because of some dimwitted analyst who will roil when the price of oil climbs or when an earnings target is honestly missed by a shaved penny per share.

But this isn't a rant, it's an observation that control has been pulled from too many corps and handed on a platter to the speculators on the NASDAQ, and NYSE. Those bozos, who've helped ruin the economy along with the depravity of a weak dollar, are wreaking havoc. On the surface, a cheap dollar helps exports-- but deficits are at an all-time high! This is because the dollar is leaking out of the US economy at staggering rates into labor costs across the world. Soon the dollar is going to be like the lire. Get bigger wallets, which will hold far less.

Do you honestly think McNealy is going to admit it

[Anonymous Coward]

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 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.

Private rocks sink as fast as public rocks...

[mschaef]

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.

Do you plan to grow or stay small?

[Ars-Fartsica]

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.

Now you could try to self-fund from the firm's income, but that won't happen quickly unless you are selling drugs.

Also note that your employees, the best ones, are constantly being lured away by the thought if stock options from a competitor. Compensation is important, and its easier to let the investing public do the heavy lifting.

Re:Doesn't make it certain.

[Seumas]

Yes, because being the leader of the greatest military and economic power on earth and sending 130,000 troops overseas to attack a couple of countries on "misinformation" is far better than being well-aware of everything and simply lying about it to achieve your objectives.

Re:Financial Tricks Don't Change Fundamentals

[Seumas]

Wow. Why was this guy marked flamebait? Sun was one of the staunches supporters pushing the whole "there's not enough qualified tech labor in America" thing in the late 90s that lead us to the situation we have today.

However, I don't think the "foreigners generally dislike documentation because it requires effective use of English" thing is at all accurate. Most overseas companies who have support contracts (which most anyone with a lot of Sun hardware will have) has people who speak fluent (or fluent enough) english. And nobody loves having everything documented - english or otherwise - than the Japanese. It's like, if it doesn't say it somewhere on an official piece of paper - it isn't right.

What Scott Blew

[randall_burns]

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.

Re:Don't get excited about Niagara

[SunFan]

Sun are saying that Niagara will be _at_least_ 15 times faster than the UltraSPARC IIIi. Even considering the USIIIi lags Xeon in SPECint, 15X is way beyond Xeon, and it's all at 56 watts. That's a pretty kick-ass improvement, IMO. BTW, floating point was never a goal for Niagara, as it's meant to be extremely well suited to web servers and J2EE servers.

I think Sun has already said that future "big-iron" CPUs will come from Fujitsu, with Sun focusing on Niagara and Rock. Given that SPARC64 has always kept pace with Alpha, POWER, etc. this shouldn't be a bad thing at all.

A 256-way SMP Opteron box would be pretty neat, but wouldn't it have to be implemented in 16-core chunks?

crucial Re:Sun's Sigma (MOD UP!)

[retiarius]

please increment the exposure to the six-sigma stuff,
as it is now making critical wall st. rounds via the
vault company surveys.

i'm also ex-sun (tenure 7+ years), who survived two
massive re-orgs but quit before RIF #3 precisely because
of the bilious GE/Sun sigma cruft, which is
garbage-in-garbage-out (GIGO) applied to metrics.
so sad.

janus team laid-off? shameful. bill joy-style expertise
outsourced? yikes. incompetent middle managers
still holding on only because their stock options are priced
at 3/4/5? horrorshow. NIH driving decision-making? gulp.

now, i'm still rooting for the good engineering work
in the face of such madness, though switching my shares
to AAPL has served well as household-preserving
defence. will niagra save the day? yes, if price-performance
becomes so right that amazon/ebay/yahoo/google beg to
turn the switch from x86 white-box maintenance. too late
to turn the linux tide, though ... going private may be
just the ticket to ride!