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Wednesday, August 02, 2006

Sun's New Change Of Control Rules

Stocks: (SUNW)(IBM)(HPQ)(AMD)

Sun Microsystem's fortunes have picked up a bit. IDC market research reported by Reuters showed that Sun's share of the gloabl server market was 10.8% and its revenue in that segment was up 5.8%. IBM and Hewlett-Packard were the market share leaders with 28% each. IBM's new alliance with AMD may be aimed at increasing that share since Sun already offers servers with AMD's Opteron chip. But, that news is getting old. Wall St. is waiting to hear what the share numbers will be for Q2 and investors in Sun are also holding their breath over whether Sun's new generation of servers.

Sun posted a good quarter recently, with revenue up 29% to $3.83 billion. But, a look inside the numbers shows that virtually all of that growth came from the company's Storage Technology and SeeBeyond acquisitions. In other words, growth in the core business was wanting.

There has been one odd development at Sun. The company filed a new "change of control" provision that gives management a bit of a windfall if the company is taken over. The revised policy from the board includes thing like accelerating restricted stock and other long-term incentives. The language that is not often seen in these documents is: "Any transaction, the sole purpose of which is to change the state of the Company's incorporation." Does this cover Sun executives if its takes over another company and this causes that entity to have a huge voting block in Sun? "The state of the Company's incorporation" is fairly broad.

Sun's stock still trades at $4.25 down from $5.40 earlier this year and over $15 five years ago. The founders, including the long-time CEO, are no longer as active as they were. Maybe someone will just buy them.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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