Thursday, according to the Wall Street Journal, information technology giant International Business Machines Corp. (IBM) is close to finalizing a deal to acquire Sun Microsystems, Inc. (JAVA) at a lower price of $9.55 per share in an all-cash deal. The current offer is about a dollar per share shy of Sun's earlier expectations. The revised price, valuing the entire company at about $7 billion, was agreed by Sun on assurance that IBM would ward-off regulatory objections in order to complete the acquisition.

The Santa Clara, California-based Sun Microsystems has reportedly agreed to lower its takeover price to between $9 and $10 per share from $10 to $11 on the condition that IBM commits to acquiring it regardless of a government antitrust review. While talks are ongoing, a transaction might not occur and the talks could fall apart, the report noted.

The negotiations are reportedly in the final stages to combine the two corporate computer giants, and an official announcement could be out by next week. Neither Sun nor IBM has yet commented on reports that the two technology companies were in merger talks. The proposed deal could likely prove to be the largest in IBM's history, surpassing its $5 billion acquisition of Canadian software maker Cognos, Inc. in November 2007.

At the current offer price of $9.55 per share, Sun shareholders are in for a premium of more than 16% at Thursday's closing price of $8.21 of Sun stock, which surged ever since the acquisition news emerged. The offer price also marks a 92% premium to the March 17 closing price of $4.97, the day before the first news of IBM's offer.

IBM and Sun both make computer systems for corporate customers that aren't reliant on Microsoft Corp.'s (MSFT) Windows software, and their product lines are less dependant than rivals' on Intel Corp.'s (INTC) microprocessor technologies. The two companies are also strong supporters of open-source Linux and Java software.

Further, the transaction would strengthen IBM's position against Hewlett-Packard Co. (HPQ) in the server market. In addition, acquiring Sun would bolster IBM against its new rival and networking company Cisco Systems Inc. (CSCO), which last month announced that it would start selling a server of its own.

The proposed deal would have the most impact on IBM's high-end server business, giving it 65% of a Unix server market share, compared to 27% for Hewlett-Packard. It would also bolster IBM's highly profitable software business and help ensure the survival of much-smaller Sun. The companies between them would have virtually the entire market for tape-based storage devices. These could be concerns that the regulatory authorities could view.

The Armonk, New York-based IBM had been paring back its dependence on hardware, where profit gains have declined, while increasing its investment in higher-margin software and services businesses. To that effect, IBM sold off its personal computer business to Lenovo of China in 2005, and its hard-disk drive unit to Hitachi of Japan in 2003.

However, the proposed acquisition of Sun is seen as the first reversal of its recent strategy to move away from hardware business. Sun Microsystems is a maker of computer servers which are used in corporate data centers as well as the creator of the Java programming language and Solaris operating system.

Reports suggest that Sun's strengths in software, systems design and research made it an attractive target for IBM, particularly related to Java and Solaris. Recently, Sun also acquired MySQL, a company distributing an open-source database that is used in Web commerce sites, for about $1 billion.

Sun is an easy target for acquisition as it has been struggling financially in recent times. However, the Silicon Valley company has long been a source of technological innovation. Despite its innovations in software, Sun has been unable to arrest the erosion in the profitability of its mainstay server business. Over the past year, Sun shares have plummeted due its reliance on sales of high-end machines and customers in the financial sector, which experienced the economic slump earlier than other parts of the economy.

IBM closed Thursday's regular trading session at $100.82, up $3.21 or 3.29% on a volume of 16.23 million shares, higher than the three-month average volume of 11.85 million shares. In the past 52-week period, the stock has been trading in a broad range of $69.50 to $130.93.

JAVA closed at $8.21, up $0.21 or 2.63% on a volume of 57.59 million shares, sharply higher than the three-month average volume of 18.65 million shares. In the past 52-week period, the stock has been trading in a broad range of $2.60 to $16.37.

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