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VIDEOIBM's Buyout of Dim Sun Brighter Than It Looks
By
Adam Katz
Mar 18, 2009 4:50 pm
Could be time to go long on some badly beaten names.
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A more interesting headline today is that IBM (IBM) is in talks to buy Sun Microsystems (JAVA), and I believe that there are more discussions like this one going on. But this marriage has very little strategic value.
Sun has some technology that IBM may or may not choose to distribute. IBM has partners offering far better technology that overlaps with Sun’s product lines. The reason that IBM would make an acquisition like this (hopefully, for IBM shareholders) is not because it intends to integrate a bunch of inferior applications, but because IBM wants to be first in line for the business when many of Sun’s hardware customers come up for renewal. IBM could build a heavy services business around it.
What's interesting is that this changes the game a bit in favor of being long some badly-beaten-up names. When assets get cheap enough to justify market-consolidation-related purchases that possess little to no strategic value, the margin of safety becomes higher for owners of these assets.
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