IBM and Sun: Follow the Money

(MoneyWatch)  There are many reasons why IBM would be interested in purchasing Sun. But one of the biggest is the color of money. When you go through the numbers, a Sun deal would not only be lucrative, but dirt cheap.

• According to Sun's most recent 10-Q, as of the end of December, the company had about $1.6 billion in cash and cash equivalents on hand, lowering the effective price to $5.4 billion at most. The company's total current assets alone were $7.1 billion. Stockholder equity was $3.5 billion.
• The reported amount that IBM would pay is between $6.5 billion and $7 billion.
• According to Yahoo Finance, at the moment, Sun's market cap, even after the stock shot up almost 80 percent on the rumor, was about $6.62 billion, or an immediate profit.
• Sun has between 1.6 million and 2 million servers already installed that will need replacing, according to IDC. Given a rough $20,000 per server, that is a potential revenue of at least $32 billion.

On top of all this, analyst Judith Hurwitz says that Sun has many software assets that IBM could easily monetize. She won't guess as to the value, but who cares? Given the financial picture above, it might all be gravy. If this deal goes through, it is economically and strategically one of the smartest moves I can remember seeing.