With apologies to The Steve Miller band, Sun Microsystems (Nasdaq: JAVA ) investors should take the double and run. You can bet that Longleaf Partners will.
Confused? On Wednesday, The Wall Street Journal reported that IBM (NYSE: IBM ) plans to offer roughly $8 billion -- or $10 to $11 per share -- for Sun. That's more than double what the stock was trading for in October, when Longleaf's top tandem, Mason Hawkins and Staley Cates, 21% owners of the business through Southeastern Asset Management, urged Sun chief executive Jonathan Schwartz to sell to the highest bidder.
Now, he might.
If you'll kindly hit the rewind button for me ...
To my knowledge, Sun hasn't commented on the Journal story, nor should it. The company is now in the enviable position of being able to force a bidding war if either Hewlett-Packard (NYSE: HPQ ) or newly anointed server-seller Cisco (Nasdaq: CSCO ) wants a piece of Sun.
Nothing would make Cates and Hawkins happier. Quoting from an October filing with the SEC in which they described their investing thesis:
Southeastern may elect to convert a filing on Schedule 13G to a filing on Schedule 13D in order to be more active in corporate governance and management matters, and to have the ability to enter into discussions with third parties concerning proposed corporate transactions of a significant nature. [Emphasis added.]
Translation: We'll force a sale if we have to.
Big Blue must know this. Surely executives there have studied Sun's filings and seen how the company has signed new change of control agreements with its top executives -- once last August, and then again effective Jan. 1 of this year.
Writer and SEC filings detective Michelle Leder of footnoted.org calls the multiple agreements a "mystery," because they aren't materially different. Maybe. Or maybe it's the result of Hawkins and Cates pushing Schwartz to get organized, were a suitor to open negotiations. A suitor like, say, IBM.
Why you shouldn't wait to sell
A deal seems likely. Who will propose remains an open question -- the Journal story says only that Sun and IBM are talking -- but as I wrote in October, IBM is as good a match as any. Both are in the server business. Both specialize in Web infrastructure. And both have a large and growing commitment to the open source movement.
Yet there would be problems with a Sun-IBM combination. Consider Java. Among all of Sun's technologies, Java, says Schwartz, is the most important.
"Brands, like employees, aren't expenses, they're investments," he wrote in 2007, shortly before Sun changed its ticker symbol from SUNW to JAVA. "Measuring their value is more art than science. But there's no doubt in my mind more people know Java than Sun Microsystems. There's similarly no doubt they know Java more than nearly any other brand on the Internet."
Before and since, Java has become a system of interlocking parts -- all built with the original Java programming language -- that's used to create Web and other network-centric software. It's a standard, not unlike Adobe's (Nasdaq: ADBE ) Flash.
Neither are huge moneymakers. And both, arguably, should be managed by open standards bodies such as the IEEE, because of their importance to the underlying structure of the Web and Web-based software. Especially now, when users are taking to cloud computing in greater numbers.
In short, nothing would break the back of cloud computing faster than customizing Java to fit IBM's needs, rather than those of the broader industry.
Now imagine making that plea to IBM chief executive Sam Palmisano after he's spent $8 billion to acquire Sun. "Hey, Sam, we know you love Java and you just spent a few thousand bucketfuls of cash to acquire it, but we need for you to give it away. Thanks."
To be fair, IBM has been a fervent supporter of open source software, and it would very likely do right by Java, even if it chose to remain the primary steward of the technology. Yet there are other conflicts. For example, while both firms use chips from Intel (Nasdaq: INTC ) and Advanced Micro Devices (NYSE: AMD ) , IBM's Power processors compete with and are architecturally distinct from Sun's SPARC. And culturally, these firms couldn't be more different.
So even if a deal makes sense -- and given the rapid consolidation of the server market, I think one does -- there are still high hurdles to clear. Investors who bid up Sun's shares 79% yesterday either (a) don't understand this or (b) don't care.
Don't be one of them. Go on, Fool, take the double and run.