Is IBM (IBM) Deal To Buy Sun (JAVA) In Trouble?

Inevitably, when a corporate buy-out is announced or rumored, the target company’s stock prices trades up to the level of the value of the deal.

Last week, there was news that IBM (IBM) was likely to buy Sun (JAVA) for about $10 a share. Sun’s stock jumped from under $5 to almost $9 in one day. But, since then Sun’s shares have been moving down. They closed the week at $7.83, well below the rumored purchase price.

There could be several reasons that IBM has either lost interest in Sun or is considering lowering a purchase price. One is that Sun has lost money or broken even in several of its most recent quarters. In the periods when the company did make a profit, it was modest. It may be that IBM has discovered that the next several quarters look weak for Sun.

Alternatively, IBM may have found out the the value of Sun’s customer contracts going forward are not as strong as it may have initially believed. Sun may be losing market share to larger competitors like Hewlett-Packard (HPQ). If Sun’s piece of the server global server industry is dropping rapidly, IBM may be considering walking away from a transaction or lowering its offer.