Sun Micro shares soar 79% on reports of IBM talks

SAN FRANCISCO -- IBM would pay at least $6.5 billion in cash — the largest acquisition in its 98-year history — and a deal could be struck as early as this week, according to the sources. They declined to be named because they are not authorized to speak publicly about the talks.

The merger talks are extremely fluid, and the deal could fall through, the sources say. The talks were first reported by The Wall Street Journal and confirmed to USA TODAY.

News of the merger talks sent Sun shares soaring 79%, to $8.89, in trading Wednesday. IBM shares slid 1%, to $91.95.

IBM and Sun declined to comment.

The move could usher in an era of consolidation and partnerships in tech as IBM, Hewlett-Packard and Cisco Systems compete to supply high-end computers that power complex corporate networks and transactions. On Monday, Cisco plunged into the computer-server market, pitting it against sometimes business partners HP and IBM.

An IBM-Sun deal makes sense for both companies, analysts and resellers say, despite some overlap in products and services. Sun's computer servers and high-end systems complement IBM's software and services, and Sun's traditional customer bases in financial services, telecommunications and the public sector are "highly desirable," says Charles King, principal analyst at market researcher Pund-IT. Sun could especially help IBM as it expands in digitizing key pieces of infrastructure, from "smart" electric utilities to water supplies.

IBM's Global Services group has, meanwhile, been one of the largest resellers of Sun systems.

"It is a big deal," says John Sheaffer, CEO of Sysix, a $100 million reseller of IBM and Sun hardware and software products. But Sun customers will be concerned "about what happens to their existing products if IBM takes over." Such a pairing would combine companies headed in different directions.