Sun Microsystems Inc. will pay $4.1 billion in cash for venerable Storage Technology Corp. in the state’s biggest technology deal since the dot-com era’s headiest days.
The move, announced Thursday, gives both companies a chance for increased growth in a highly competitive, rapidly consolidating industry, they said. It was viewed by local development officials as good for the economy and good for the workforce.
“There’s no feeling that Colorado is losing a high-tech company, because Storage Tek has all its operations here,” said Drew Bolin, director of business development of the Colorado Office of Economic Development and International Trade. “It will be a nice partnership. They both have such a large presence, it seems like a smart merger.”
But some analysts criticized Sun’s deal because StorageTek, while financially healthy, isn’t fast-growing.
Sun’s technology investment – the biggest in Colorado since Japanese telecom giant NTT bought Verio in 2000 – appears to reaffirm the Santa Clara, Calif., company’s commitment to Broomfield. It selected the northern Denver suburb for a big operations center in 1997.
But employment at Sun’s campus in the Interlocken business park has declined substantially after the technology bust and competitive missteps by Sun.
StorageTek, which sits across U.S. 36 from Sun in neighboring Louisville, is a leader in tape-based data storage, employing 2,000 people in Colorado and 7,000 worldwide in 55 countries. Sun, which is five times StorageTek’s size, makes and sells computer servers and software. It employs 2,700 in Colorado.
The companies, longtime business partners, have been in discussions for several months, their chief executives said. Board members of both companies have approved the deal, which is expected to close by the end of the summer, following regulatory approval.
“There’s tremendous similarities in terms of the customer set we serve,” said StorageTek chief executive Patrick Martin. “As we sought to share product road maps, it almost became pretty obvious where we want to go and what our needs were and where Sun was, and the joining of the two companies just made sense.”
Optimistic about the “synergies” the merger would create, Martin and Sun CEO Scott McNealy played down talk of job redundancy and potential layoffs.
“It’s a broadening as opposed to just creating scale, so there’s very little overlap,” McNealy said. “Thirty-six percent of the world’s archived storage runs on Storage Tek technologies, so there’s full- time jobs for everybody on each side of the shop until both companies are put together.”
StorageTek and Sun have worked together for 10 years, McNealy said, and the deal came together as “they’re a big OEM (original equipment manufacturer) of ours and we’re a big OEM of theirs.”
Martin said that StorageTek has done well for the past five years but hasn’t been able to command a strong market share with its new products.
“Combining our sales organization and their deep understanding of storage with Scott’s incredible, sophisticated, large- sale organization, we now have 11,000 people to sell the value proposition we’re talking about,” Martin said. “This fundamentally repositions us in the eyes and minds of our customer and against the competition.”
StorageTek shareholders will receive a cash payment of $37 a share, an 18.5 percent premium over the company’s closing price Wednesday. StorageTek shares rose more than 16 percent – $5.13 – in trading Thursday, closing at $36.36. Sun Microsystems closed down 11 cents, at $3.79.
Both companies face challenges in their industries.
Sun’s market share in the server industry declined to 9.5 percent in the first quarter from 10.3 percent a year earlier, according to Stamford, Conn.-based researcher Gartner Inc. IBM commanded 29.8 percent of the market, while Hewlett-Packard Co. had 28.1 percent and Dell Inc. rose to 10.8 percent.
Neither Martin nor McNealy would say how their positions would change. But Martin in April announced he would leave StorageTek after his contract expires next year.
Critics said they would rather see Sun cut costs or buy a company that’s growing faster.
“Obviously it’s a great deal for StorageTek shareholders, but for Sun it’s probably very bad because what Sun is buying is a no-growth company whose fundamentals are actually shrinking,” said Kaushik Roy, storage analyst for Susquehanna Financial Group in Boston. “Storage Tek is the market leader at the high end of the tape library market, and the tape library market is shrinking.”
Staff writer Kimberly S. Johnson can be reached at 303-820-1088 or kjohnson@denverpost.com.
