Sun acquires StorageTek for $4.1B

Two struggling giants consolidate to offer users a more complete package of server, disk and tape storage, and management software for archiving and compliance.

Sun Microsystems Inc. announced plans to acquire Storage Technology Corp. (StorageTek) for $4.1 billion, bringing together two struggling giants in the server and storage marketplace.

"Sun's technical and financial strength puts us in a great position to act as a consolidator in the IT industry," said Scott McNealy, Sun's chairman and chief executive. "This acquisition is part of an ongoing strategy to respond to customers seeking to rationalize their data center purchases."

The deal comes as both companies are experiencing declining sales: Sun's customers are turning away from its expensive high-end servers and StorageTek customers are gradually shifting toward backup-to-disk products instead of tape.

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However, Sun has embarked on a plan to increase the prominence of its software products and to build new servers with lower cost Advanced Micro Devices' Opteron processor. StorageTek is pushing its relatively new FlexLine disk arrays and is set to unveil an object-based disk and tape archiving system, codenamed Trinity, next week. This will compete with EMC Corp.'s Centera product and Hewlett-Packard Co.'s Reference Information Storage System appliance.

Compliance and archiving appears to be a major instigator for bringing these two companies together. On a call with press and analysts, McNealy said that, with increased regulations on companies regarding compliance issues in financial services and increased data requirements in health care, the transaction made sense.

It's a little known fact that StorageTek already OEMs Sun's hierarchical storage management software, dubbed SAM FS, which allows users to automatically archive new or changed files, and its SAN file system, QFS.

Sun just announced this week its Content Infrastructure System, which includes Fibre Channel and SATA disk, tape and SAM FS and QFS software and is referred to internally as "information lifecycle management in a can."

According to Chris Wood, chief technology officer of Sun's storage group, tape is an important piece of the archiving market, which is growing rapidly -- thanks to internal and regulatory compliance procedures.

"Statistically, it's unlikely that I'll ever read all the data I am storing, but I'm not ready to delete it or don't have time," and often the best place for it is tape, he said, which is "one twentieth the cost of disk."

It's unclear at this stage what will happen to Sun's own object-based archiving system, code-named Honeycomb, which was expected later this year.

The deal puts an end to the rumors of Scott McNealy taking Sun private and also ends the question of who will succeed Pat Martin as the CEO of StorageTek.

Under the terms of the agreement approved by both boards of directors, StorageTek stockholders will receive $37 per share in cash for each StorageTek share for an aggregate value of approximately $4.1 billion, including the assumption of employee stock options. Sun expects the transaction to be accretive to non-GAAP earnings in the first 12 months following the closing.

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