January 25, 1996 7:45 p.m.
Apple, Sun said to be wide apart on deal
By Ted Smalley Bowen and Charles Cooper
Will it go down as the merger that never was?
Sun Microsystems Inc. and Apple Computer Inc. remain deadlocked over pric e, according to sources familiar with the talks, who say the two sides are at loggerheads.
"They are so far apart, it's not funny," said one source. "I don't think it'll happen."
In what sources inside the investment community see as an extremely fluid situation, Apple has rejected a low-ball $23-per-share offer -- which would be just above the company's book value -- from Sun. Earlier in the week, the Wall Street Journal reported that Sun had offered $33 per share for Apple, in a stock swap valued at approx imately $4 billion.
"Ask the Wall Street Journal," said Sun CEO Scott McNealy. "They seem to think they know what is going on. Sorry. I have nothing to offer. Could you run a front-page article, too? We enjoy the p ress."
Meanwhile, Apple is going ahead with its reorganization plans, today anno uncing the appointment of Heidi Roizen as vice president of the company's developer relations. Roizen today resigned as CEO of T/M aker, the Mountain View, Calif., software company she founded 13 years ago.
Should it go through, Sun's proposed bid for Apple, which has dragged on for the last week, would make for a sensible combination, according to many analysts. They say Apple's strengths in co nsumer, education, pre-press, and graphics and design markets nicely complement Sun's high-end offerings in business and techni cal workstations and servers.
At the same time, they say that Sun's well-publicized Internet product st rategy would mesh well with Apple's position in the Internet server market. "Clearly, Apple needs to do something -- whether through partnerships, al liances, or a sale -- [but] Sun has a lot more to gain from the acquisition than the other way around," said Todd Bakar, an analyst w ith Hambrecht & Quist, in San Francisco. "Sun is well-positioned in terms of the Internet. The Apple Piper and Newton tech nologies could help Sun establish a presence at the client level. Apple also has a large installed base and strong [user interface] technology."
Despite a torrent of leaks that the two companies were negotiating, Apple officials earlier this week said the company was not for sale. Apple's apparent foot-dragging was interpreted as standard operatin g procedure for a company in the late stages of such a deal, according to Pieter Hartsook, editor of the Hartsook Letter, in Alameda, Calif.
"The Apple board of directors has a fiduciary duty to its shareholders to maximize returns," Hartsook said. "[But] I'm not sure if selling the company for $33 a share to a company half the size is a good idea."
Apple has already rejected several bids from Sun, starting at as high as $38 per share, according to sources. Analysts, however, say Apple's disappointing performance during its recently reported second fis cal quarter had sapped the company's bargaining strength.
"Apple helped Sun along [in its bargaining position] with the poor result s, particularly in the U.S. [market]," said Daniel Kunstler, an equity analyst with Morgan Stanley Securities. "You could say Sun is playing hardball lowering the price. But you can argue that Apple's value has been going down."
However, Sun is not expected to boost the offer or engage in a bidding wa r, should other suitors join the fray. Although none have stepped forward, Kunstler said, possible interlopers include IBM, Motorol a Inc., Hewlett-Packard Co., and Oracle Corp., all of which have shown interest in the past.
"I expect Sun will be very disciplined. If some other suitor comes in wit h an offer, Sun probably won't engage in a bidding war," he said.
Even at the relatively low bid of $33 per share, some observers question Sun's apparent decision to pursue Apple.
"The low 30s is already too high," said David Wu, an analyst with the Chi cago Corp., in New York. "You got a house in a deteriorating neighborhood. They're crazy to do this. If I were a competi tor to Sun, I would be popping champagne."
"You should send a bottle of Maalox and a bottle of aspirin. He may be a hockey player, but he ain't no miracle worker," Wu said.
It is unclear whether Apple CEO Michael Spindler would survive a buyout, although his status is not expected to be a condition of the deal.
"McNealy is pretty good at delegating, but he wants control. He probably wouldn't share power with Spindler. Whoever controls the company is going to have to bring in somebody from the outside," said Har tsook. "Spindler has the loyalty of the board, but friends are friends only to a point. That loyalty wouldn't stand in the way of a deal."
Speculation over which products and technologies would be retained after the deal suggests that Sun would place a stronger emphasis on Apple's software, though not to the complete exclusion of the company' s hardware.
"Any selloff of Apple hardware would come in different shades of gray. I would expect Sun would pursue a more aggressive licensing program of the Mac OS, which would cede part of the hardware bu siness to clones," Kunstler said. "And who knows what would happen to Apple's manufacturing capabilities? In terms of account c ontrol, it's a question of what they relinquish."
Despite the possibility of the Sun deal reaching fruition, not all observ ers accept it as a foregone conclusion.
"I think if they're going to sell, Sun is the best fit, but the industry has a way of getting ahead of itself in [anticipating] these things," said Andrew Seybold, editor and publisher of the Outlook on Communication s and Computing newsletter, in Brookdale, Calif.
Copyright (c) 1996 Ziff-Davis Publishing Company. All rights reserved. Re production in whole or in part in any form or medium without express writ ten permission of Ziff-Davis Publishing Company is prohibited. PC Week and th e PC Week logo are trademarks of Ziff-Davis Publishing Company. PC Week Online and the PC Week Online logo are trademarks of Ziff-Davis Publishin g Company. JF