Tuesday, October 28, 2008

Sun get a visit from Uncle Sam

Things really are not looking too good at Sun right now.

The recent SEC filing shows that Southeastern Asset Management (a.k.a. Uncle "SAM") have spent $2,115,932,199 to bring their acquired stock of Sun up to 21% of the company's total outstanding shares.

The aggregate number and percentage of Securities to which this Schedule 13D relates is 160,566,828 shares of the common stock of the Issuer, constituting approximately 21.2% of the 757,953,410 shares outstanding.
But Uncle Sam is no sugar daddy. He wants to move in for a while and "help" Sun to manage the company...
As the result of investment analysis or the occurrence of events, Southeastern may desire to participate in discussions with the particular portfolio company's management or with third parties about significant matters in which Southeastern may suggest possible courses of action to assist in building corporate intrinsic value per share or to cause the Company's true economic value to be recognized. In such situations, Southeastern may elect to convert a filing on Schedule 13G to a filing on Schedule 13D in order to be more active in corporate governance and management matters, and to have the ability to enter into discussions with third parties concerning proposed corporate transactions of a significant nature.
Hmm - what do you read into the expressions "suggest possible courses of action", "be more active in corporate governance and management" and "enter into discussions with third parties concerning proposed transactions of a significant nature" ?? That in conjunction with news that co-founder Bechtolsheim has found new interests outside Sun points to some loss of control by the current management team.

This comes hot on the heels of Sun's preliminary results for 1Q09 in which, beyond the earnings warnings, there was the notice of imminent "goodwill impairment" which essentially means that the premium they paid on their acquisitions probably won't be earned back. Which acquisition(s) they overpaid for is a matter of debate. I expect the results call will be tough on Thursday.

We can only speculate about what Uncle Sam will think of Sun's software business, and the Java group in particular. Now it is open sourced it is hard to see how Sam will realize it's "intrinsic value" for Sun's shareholders. Let's hope Sam sees the value of freedom over no-cost -- and let's hope that Sun can turn things around in this period of global economic downturn.