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Sun details Oracle, IBM negotiations in SEC filing

In the wake of lawsuits filed by shareholders over its acquisition by Oracle, Sun Microsystems called for a meeting of shareholders to vote on the proposed merger and released background information about the negotiation process in an SEC filing today. And it’s a fascinating read.

The industry was almost immediately abuzz after the filing hit Sun’s website – Sun revealed in the document that there had been a third suitor in negotiations along with Oracle and, as widely reported, IBM. Aside from Oracle, no companies are actually named in the document. The others are referred to instead as Party A and Party B.

From widely reported details about Sun’s negotiations with IBM, it seems clear the Blue Blue is Party A. Party B is much more mysterious, but a source told Bloomberg news that “Party ” was Hewlett-Packard Co. According to the filing, Party B did due diligence but never made a formal offer.

The details of how negotiations fell apart with Party A are interesting, with offers ranging from $8.40 to $10 per share.

On April 3, 2009, Party A indicated that it wished to bring the process to a close. On April 4, 2009, legal counsel for Party A delivered to us and our counsel two versions of a merger agreement, indicating that these agreements represented Party A’s final offer to acquire us and that such offer would expire at 6 p.m. that day if one of the two agreements were not executed by us prior to that time. One of the draft agreements proposed a price per share for our common stock of $9.40 in cash and the other proposed a price of $9.10 per share in cash. Each of the agreements contained certain material terms related to transaction certainty to which we and our advisors had previously objected. The $9.40 agreement also required us to take certain actions as a condition to Party A’s obligation to take certain steps to obtain antitrust clearance, which we had previously communicated to Party A that our management considered impossible for us to satisfy. The $9.10 agreement did not contain this condition.

Oracle paid $9.50 per share, for a total of $7.4 billion including Sun’s debts.

There has been speculation since the Oracle deal was announced about whether or not Oracle intends to maintain Sun’s hardware business going forward, or spin it off to another vendor. However, the Sun SEC filing today also disclosed that Sun will be bought whole by Oracle and operated as a wholly owned subsidiary. Another section of the document indicates Oracle had approached Sun with offers to buy just the software business, which went nowhere.

The document also goes into fine-grained detail about estimated severance for practically all of Sun’s upper management, including CEO Jonathan Schwartz ($9 million) and EVP of Systems John Fowler ($2,7 million). Whether or not they get those payoffs soon after the expected acquisition close (August 2009) is still anybody’s guess.

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