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Sun Shareholders Sue

04.22.2009
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A Sun investor has filed a proposed class action lawsuit against the company for breaching its "fiduciary" duty when it attempts to sell Sun to Oracle under the "present conditions."  The lawsuit is being filed on behalf of current investors of Sun who purchased their shares before the acquisition was announced on Monday, April 20th, and who continue to hold their shares, according to the announcement.

 Also mentioned in the announcement:

.... According to a poll by the Shareholders Foundation, Inc., an investor advocacy group that does research to shareholder issues and informs investors of securities class actions, settlements, judgments, and other legal related news to the stock market, the majority of the participants (22%) think a price of $13-16 per Java share would be fair to Sun Microsystems investors in case of a takeover, 7% favor a price between $4-$8, 18% favor a price between $9-$12, 14% favor a price between $17-$20, 15% favor a price between $20-$24, 7% favor a price between $25-28, and 18% think the price should be over $28. Prior to the announcement of the proposed takeover of Sun by Oracle rumors said that Sun was in talk with IBM, but those talked ended without a result. 

 

It is unclear what legal obligations Sun actually had to its investors prior to finalizing the Oracle transaction and subsequently going public with it on Monday; however, what is clear is that a number of investors are disappointed with the $9.50/share selling price. Do you think there's any legitimacy to this lawsuit? Did Sun sell for a 'fair' price?

 

Published at DZone with permission of its author, Nitin Bharti.

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)

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Comments

Rick Ross replied on Wed, 2009/04/22 - 4:35pm

It's hard to know how many shareholders are really willing to get behind a lawsuit like this. Are we looking at a wholesale objection from Sun stockholders, or is this more like a small, vocal minority who doesn't favor the outcome Sun's board has accepted? Time will tell...

Otengi Miloskov replied on Wed, 2009/04/22 - 5:52pm

This hurt Java, what the hell is doing Sun and Oracle. The deal is plain stupid.

Jim Bethancourt replied on Wed, 2009/04/22 - 6:12pm in response to: Rick Ross

Hi Rick,
If the survey population is large enough (if the advocacy group is doing it's job right, it should have been), then it probably has a pretty close margin of error.

14% + 15 % + 7 % - 4% (margin of error) = 33%

While this is less than a majority of the shareholders, it doesn't take into account the number of shares that each investor has, which (I imagine) could have an impact on the lawsuit.

Cheers,
Jim

Jeroen Wenting replied on Thu, 2009/04/23 - 1:30am

Lawsuits, the American national passtime...
Jim, such lawsuits are almost always filed by small parties. Many of those are exactly the people who tend to overvalue their stock, especially in times like this when markets are dropping.
They no doubt purchased stock when it was high and can't cope with the fact that the stockmarket has dropped out from under them, causing prices to collapse.
Sun may indeed be worth more in reality than the current stock price indicates, but as the purchase price of a company is measured in the price of its stock that's irrelevant. It just means that whomever buys stock now is getting a good deal and more power to them, whomever sells now is out of luck.
IOW, this is just another frivolous lawsuit. I would suspect IBM to be behind it, they'd loose all hope of ever buying Sun if Oracle bought it first. Never mind that IBMs bid was lower than Oracle's, and their next bid if this lawsuit succeeds will be lower still (and not contested by the people who now filed suit of course).

Guido Amabili replied on Thu, 2009/04/23 - 2:41am

I bet it's Ryan de la P. ;-)

Fabrizio Giudici replied on Thu, 2009/04/23 - 4:14am

They no doubt purchased stock when it was high and can't cope with the fact that the stockmarket has dropped out from under them, causing prices to collapse.
Sun may indeed be worth more in reality than the current stock price indicates, but as the purchase price of a company is measured in the price of its stock that's irrelevant. It just means that whomever buys stock now is getting a good deal and more power to them, whomever sells now is out of luck.

Agree. It seems that many people doesn't understand the meaning of the "risk" word in the field of investing, especially in the stock market. Such class actions are meaningful only if you think there has been a fraud in some place, which is not the case, since the statement doesn't talk of it. It's a pity to see a powerful tool, such as the class action, that in many cases can give to the end customers the possibility to exercise their rights, abused in this way.

Yes, I fear that there could be IBM behind this, which worries me. Should it be only the idea of a couple of morons, it would be fated to fail soon.

Jim Bethancourt replied on Thu, 2009/04/23 - 8:39am

Hi Jeroen,
Indeed they are (quite unfortunately). I'm not familiar with shareholder suits, but I would imagine once a majority of the shareholders approve, they'll have little (if any) room to complain. I haven't seen any rumblings of a proxy fight (as was the case with the Compaq - HP merger), but people are still trying to make sense of it all and the deal is far from closing. Who knows what will develop in the coming weeks and months...

Not sure how IBM could be behind this - perhaps you could enlighten me?

Thanks,
Jim

Mike P(Okidoky) replied on Thu, 2009/04/23 - 9:59am

Doesn't the majority of stock holders get to decide what to sell for?

The minority doesn't have a leg to stand on I think. What are the rules?

Jeroen Wenting replied on Sat, 2009/04/25 - 12:31pm

It wouldn't surprise me if some or all of the parties involved would on investigation be shown to have financial ties to IBM, either because IBM owns them (directly or indirectly) or because they're business partners.

Jeroen Wenting replied on Sat, 2009/04/25 - 12:39pm in response to: Mike P(Okidoky)

Doesn't the majority of stock holders get to decide what to sell for
The majority of voting stock outstanding gets to decide. That's something different from the majority of stock holders
For example, 80% of stock is voting stock (companies can issue non-voting stock) and 51% of that is owned by 2 parties, with the other 49% of voting stock and all the non-voting stock being owned by a total of 5000 parties, those 2 parties can decide together. That is of course only proper, they own 51% of the existing capital in the business.
Added to that, most companies have a rule that states a minimum percentage of stock needed to have access (and thus voting rights) to the shareholders' meeting. Not sure what that is at Sun, it's often something 1% for access and 3% for voting rights. This to prevent people from buying single shares on the exchange for the sole purpose of causing trouble (which has happened in the past). There is talk of pulling those percentages up sharply to prevent small shareholders like your typical hedgefund (who usually buy just enough to get a vote) from causing trouble and destroying good companies in exercises to get massive shortterm profits.
The people filing here are probably that kind of holders, people and companies with very small portfolios who don't have a leg to stand on because of the amount of shares they hold and no voice in the shareholders' meeting to make trouble there.

Juan Madrigal replied on Thu, 2009/05/07 - 10:24am

The shareholders need to stop the Oracle/Sun merger and instead vote to have Apple buy Sun before its too late! http://architosh.com/2009/04/commentary-oracle-buys-sun-good-for-apple/ Apple + Sun is a better fit that will lead to a revival of Sun as Apple Enterprise.

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