The Tech-Stock Feeding Frenzy Starts Now

And so it begins.

WSJ.com is reporting that IBM (NYSE: IBM  ) is readying a $6.5 billion -- or better -- bid for Sun Microsystems (Nasdaq: JAVA  ) . It's a buyout that would roughly double Sun's value since last night's close.

The deal, according to The Wall Street Journal's website, would "bolster IBM's heft on the Internet, in software and in finance and telecommunications markets." It makes sense, if WSJ's unnamed "people familiar with the matter" are in fact familiar with the matter. IBM may have spent the last few years prying itself from its hardware roots to emphasize its higher-margin software and enterprise services, but it never hurts to make a bigger splash in Sun's stronghold of servers and other network computing equipment.

Sun is no slouch on the software end, either, as the company behind Java and the StarOffice suite of cloud computing productivity apps. 

If the buyout buzz bears fruit, this won't be the first tech merger. The last few days of market rallies should spur other tech bellwethers to snap up smaller puzzle pieces. As the market tanked over the past few months, bottom-feeders had little reason to rush out merger proposals. Waiting only made stocks cheaper. Now that the sentiment has turned -- at least temporarily -- waiting may only make stocks more expensive.

You're definitely seeing this in the Internet sector. JPMorgan analyst Imran Kahn issued a report earlier this month, singling out a few stocks that would be attractive buyout candidates. They've been on a tear since then.

 

3/5/09

3/17/09

Change

Omniture (Nasdaq: OMTR  )

$10.01

$13.22

32%

MercadoLibre (Nasdaq: MELI  )

$14.63

$17.03

16%

Shutterfly (Nasdaq: SFLY  )

$7.79

$8.81

13%

The Knot (Nasdaq: KNOT  )

$5.79

$6.95

16%

Expedia (Nasdaq: EXPE  )

$6.64

$7.99

20%

Companies will naturally be less receptive to buyout inquiries as their stocks are rising. Shareholders aren't clamoring for change. The companies are confident in their organic playbooks. However, since most growth stocks are trading well off their highs, potential suitors may have no problem offering healthy premiums.

If IBM is willing to essentially offer a 100% premium for a moribund company like Sun, just imagine the markups on the deals that will inevitably come later this year.

More stories to brush up for the feeding frenzy:

MercadoLibre is a Motley Fool Global Gains pick. The Knot and MercadoLibre are Motley Fool Rule Breakers recommendations. Omniture is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz embraces disruptions and lives for opportunities. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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