Staley Cates has seen better times. Three out of the past four years have ended badly for the Longleaf Partners (LLPFX) fund that he manages with Mason Hawkins; 2006 was the only year in recent memory in which the duo beat category peers. And they're trailing the category average and the market again in 2008, Morningstar reports.

I mention this not to embarrass either manager but for context. Longleaf's advisor, Southeastern Asset Management, has doubled its stake in Sun Microsystems (NASDAQ:JAVA) over the past year, to 21%. It's a move that's likely to elicit some head-scratching among the members of our 120,000-plus Motley Fool CAPS community:


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So be it. Turnaround investing can be a dangerous business. Some of Longleaf's big losers during 2008 include General Motors (NYSE:GM), Dell (NASDAQ:DELL), Level 3 Communications (NASDAQ:LVLT), and eBay (NASDAQ:EBAY).

Squint to see returns
But if it's the long term that matters -- and I submit that that's exactly where your focus should be -- that Longleaf's 10-year record is more than good. It's great. That's why I'm so interested in what Cates and Hawkins have to say when it comes to Sun; they're betting on its shares to produce another decade of supersized returns.

And they think a "transaction" is the way to unleash the stock's intrinsic value. Quoting from a recent SEC filing: "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.]

Southeastern says it has already had discussions with management about this very idea. The timing also makes sense. Sun co-founder Andy Bechtolsheim is leaving for a start-up company he helped fund. In all likelihood, he's pursuing what he probably believes is a better opportunity. But it's also possible that he may think a sellout is imminent and is getting out while the getting is still good.

Who would buy Sun? Hewlett-Packard (NYSE:HPQ) could be interested. So could IBM (NYSE:IBM). And think about this: Sun has $1.4 billion, or around $1.90 a share, in net cash, a figure that would sweeten the pot for any acquirer. 

Either way, the sun hasn't yet set on Sun. Cates and Hawkins just made sure of it.

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Fool contributor Tim Beyers owned shares of IBM at the time of publication. Dell is an Inside Value pick. eBay is a Stock Advisor selection. Get access to all of Tim's Foolish writings. The Motley Fool's disclosure policy doesn't understand those who like their eggs sunny-side up. Too runny.