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.

Already debunked.

[ajlitt]

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

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.

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!

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

[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.

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.

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.