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. Last Updated: 07/27/2016

Apple, Sun Merger Talks Ebb

SAN FRANCISCO -- Talks between Apple Computer Inc. and Sun Microsystems Inc. on a merger appear to be breaking down as the two companies cannot agree on what price Sun would pay for Apple, industry sources said Sunday.


There still is a possibility of a deal between the two, but only if Apple is willing to accept Sun's most recent offer, which is around $23 a share, they said. Apple's stock ended Friday at $30.625 on Nasdaq.


Apple is believed to be looking hard for another suitor, while Sun CEO Scott McNealy told the New York Times on Friday that he was working on his golf game this weekend.


The San Jose Mercury News reported Saturday that Motorola Inc. is considering whether to make a bid for troubled Apple. But a spokesman for Motorola said its policy is not to comment on rumors.


An Apple spokeswoman could not be immediately reached, but the company has recently said it does not comment on "rumors and speculation."


"Apple is hoping they can get one more date for the prom," said Steve Harmon, a Jupiter Communications analyst. "All the big shots should be coming out of the woodwork. If you are [Apple CEO Michael] Spindler, you are sitting by the phone."


One source familiar with the situation said last week that Apple was "exploring a number of things," but declined to be more specific.


MacWeek, an industry trade publication, reported that Apple is also considering an alliance or a merger with Sony Corp., but officials at Sony could not be reached for comment.


"I would continue to believe that Sun will hold their ground," said Daniel Kunstler, a J.P. Morgan analyst. "It just places Apple in a conundrum: If they don't conclude a deal, the floor could come out from under their share price ... There is a lot of pressure on Apple."


Industry sources said Sun is not willing to pay a premium for Apple because after the company announced its first-quarter earnings last week, its financial picture is believed to be worse than many on Wall Street had expected.


Sources said that about three weeks ago, Sun made an initial overture to Apple worth about $28 a share in a stock swap transaction. But after Apple's first-quarter loss, it lowered its bid, last week offering around $22 to $23. Sun's lower bid came after it performed a due diligence review of Apple's financial situation. Its internal inventory problem is believed to be worse than expected.


In the first quarter, Apple said its gross margins were impacted by an inventory adjustment of approximately $80 million. But some sources said Apple's inventory problem could be even worse. Apple reported a loss of $69 million in its latest quarter and said it was cutting 1,300 workers over the next 12 months as part of a plan to refocus its business.


The cuts amount to 8 percent of its work force, including full-time, part-time and contract workers, and were its first step to get profits back in shape after the dismal first quarter ending Dec. 29.


Apple's restructuring plan has been criticized by shareholders and Wall Street analysts, who said the company needs a visionary leader willing to cut more costs.


Scott McNealy, Sun Micro's outspoken CEO, has a common goal with Apple -- that it could present a united front against Microsoft Corp. And it would be a more acceptable merger than with some of the bigger companies.