Sun Microsystems to Buy StorageTek for $4.1B

Network computer maker Sun Microsystems Inc. (SUNW) said on Thursday it agreed to buy Storage Technology Corp. (STK) for $4.1 billion in cash, bolstering its presence in the fast-growing market for data storage.

Santa Clara, Calif.-based Sun will pay $37 per share for Louisville, Colo.-based Storage Technology, also known as StorageTek, and the price includes the assumption of StorageTek employee stock options. The $37 price is an 18.5 percent premium to StorageTek's closing price on Wednesday.

The move by Sun is the company's largest acquisition in recent memory as the one-time Wall Street darling seeks to reinvent itself after falling on hard times since the implosion of the dot-com boom in 2000. The deal could also help shore up Sun's computer server business, where it has lost market share to rivals such as International Business Machines Corp. (IBM) on the high end and Dell Inc. (DELL) on the low end.

"We have the cash, we have a strong financial position. We have committed to turning the huge cash position at Sun into profitable growth," said Sun's CEO Scott McNealy (search) on a conference call with analysts to discuss the deal.

McNealy said that, with increased regulations on companies regarding compliance issues in financial services and increased data requirements in health care, the transaction made sense.

"It was becoming a more and more important component of solving these complex network computing problems," McNealy said, referring to data storage issues facing companies.

Sun is still working to recover from a bruising technology downturn in which it lost market share to rivals such as IBM, Dell and Hewlett-Packard Co. (HPQ).

Sun was harder hit than its competitors in the wake of the dot-com bust as two key customer segments, telecommunications and financial services, proved more vulnerable than other industries.

Now, after maintaining hefty investments in research and development, Sun hopes its bundled offerings of computer servers, storage gear, software and service offerings will restore sustained revenue and profit growth.

Sun posted a $9 million quarterly loss in April, down from a $760 million loss a year earlier that included the costs of a real estate restructuring and job cuts. Sun's servers use its Solaris version of the Unixoperating system or different versions of freely available Linux.

The planned acquisition would add about 1,000 data storage salespeople to Sun's workforce, McNealy said. StorageTek will be folded into Sun's storage business, headed by Mark Canepa.

Sun said that it expects the proposed acquisition to add to earnings before items in the first 12 months following the deal's close, which the company expects in several months.

The purchase price represents an 18.5 percent premium to StorageTek's closing price of $31.23 per share on the New York Stock Exchangeon Wednesday. StorageTek shares rose nearly 18 percent, or $5.48, to $36.71 in pre-market INET trading, while Sun Microsystems shares rose 4 percent, or 16 cents, to $4.06.