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IBM-Sun Deal 'In Final Stages'

Computing giant IBM is nearing a deal to acquire server and software maker Sun Microsystems, according to a published report Friday.

The Wall Street Journal, citing unnamed sources, said the two companies "are in the final stages of negotiations" on a deal that would see IBM pay $9.55 per share, or about $7 billion, for its smaller rival.

IBM and Sun officials have not commented on reports about the deal. Sun shares were up 1.95%, to $8.37, in late-morning trading Friday. IBM shares were up 0.29% to $101.11.

To proceed with the merger, Sun is seeking assurances that IBM will stick with the deal even if it faces stiff regulatory opposition, according to the paper.

A tech industry group largely made up of IBM rivals says a merger between Big Blue and Sun would be harmful to competition in the IT industry and lead to higher prices for software and hardware.

"If this merger is announced, it will require careful, extensive review by antitrust authorities because of the wide range of products both companies now produce," said Ed Black, CEO of the Computer & Communications Industry Association, in a statement last month.

CCIA is a D.C.-based lobby group whose member includes Microsoft, Google, and Advanced Micro Devices, as well as mainframe maker T3 Technologies.

Some analysts believe a deal would make sense for both IBM and Sun. Sun's proprietary hardware business has all but dried up in the face of competition from commodity players such as Intel, and it's struggling to keep pace with larger players in the software business, such as Oracle, Microsoft, and IBM itself.

Yet the company retains key, widely used assets, including the Solaris operating system, the open source MySQL database -- which boasts more than 11 million installations -- and the Java programming language.

IBM also is in a good position to better monetize Sun's open source assets.

IBM doesn't charge for open source software directly, instead bundling it with lucrative services and consulting engagements. The business model represents a threat to pure-play software vendors like Microsoft and Oracle. Adding Sun to the mix would serve to extend IBM's dominance in the market for middleware that businesses use to connect a vast range of computing devices and applications.

IBM is well positioned to take advantage of low market valuations for Sun and other industry players. The company's profits and revenue have held up better than most of its competitors during the recession, largely because of long-term services engagements that generate a steady stream of predictable revenue, and a number of cost-cutting moves.

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