The deal will give Sun a greatly expanded storage product line, additional sales channels, and a larger sales force and partner network, company executives said.
Sun will pay US$37 per share for each share of StorageTek, an 18 percent premium on the stock based on Wednesday's closing price of US$31.23. Sun said the deal should boost its bottom line within 12 months of closing, which it expects to happen in late summer or early fall.
Sun CEO Scott McNealy said the combination of two companies' gear will make Sun one of the largest providers of "information lifecycle management" products, which combine hardware and software for creating, storing and archiving corporate data.
"As we looked at the total US$65 billion available market for storage and things like Sarbanes-Oxley and HIPPA and other regulatory compliance issues, (we saw that) storage, data management and managing critical data assets of companies (were) becoming a more and more important component of solving complex network computing problem," McNealy said during a conference call Thursday. "We're very interested in the storage business, but this combination here takes us to new level of scale and scope on global basis."
Sun and StorageTek's storage product lines will be merged and sold by a combined sales force, executives said. StorageTek, which employs about 7,100 people, will mix into Sun's storage organization under Mark Canepa, executive vice president of Sun's storage products.
McNealy said the addition of StorageTek will boost Sun's revenue, profit and ability to generate cash. Through the all-cash transaction, Sun will gain StorageTek's US$1.1 billion cash reserves.
Some risk
Gordon Haff, an analyst at Illuminata, called the planned acquisition a "bold move" that makes sense for Sun but does carry some elements of risk.
In particular, he said that many corporate customers tend to either buy storage products from their server vendors, such as IBM or Hewlett-Packard, or they seek out storage specialists, such as EMC or Network Appliance.
"It's a big expenditure. It's essentially a big bet for Sun to transform themselves into a total systems company more in the vein of IBM than they were," Haff said. "Certainly, this kind of expenditure means that Sun is really committed to having a successful storage business. Otherwise, this will be looked back on as a huge waste of money."
Haff said that Sun's storage business until now has not been very successful.
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