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February 2, 1996

Apple and Sun Microsystems Said to Be on Verge of Deal

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  • Apple Faces New Departure in Top Ranks

    PALO ALTO, Calif. -- Apple Computer and Sun Microsystems are once again edging toward a historic merger intended to salvage the pioneering personal computer maker now struggling in the midst a deep financial crisis brought on by the rapid collapse of its business strategy.

    The two companies have been discussing a merger for more than a month, and following an all-day meeting of Apple's board on Wednesday the computer maker, based in Cupertino, Calif., was said Thursday to be on the verge of accepting a Sun offer that was near $27, about $4 higher than Sun's first bid, which it made on Jan. 23.

    An agreement that would create a new computer giant, with products ranging from personal computers to mainframe systems -- a combination that would give it a potentially significant advantage in the rapidly growing Internet computing market -- could be made within days.

    A person with detailed knowledge of the discussions stressed Thursday night that the agreement was not final and that all details were not yet worked out.

    Recent news reports have placed the amount of Sun's offer as high as $38 per share, but people who have been involved in the negotiations said that the figures were inaccurate and that there had been only a single previous offer, which was made based on about a share of Apple's stock for a half share of Sun stock.

    A person familiar with the discussions said that Sun's relatively low offer had been determined because the computer maker had detailed knowledge of Apple's financial problems and believed that the company's situation was far worse than had been generally believed by Wall Street analysts.

    Executives at both Apple and Sun could not be reached Thursday night for comment.

    One investment banker close to Apple said the deal gained urgency because of Apple's weakened financial state.

    Apple had cash and short-term investments of $1.1 billion at the end of the first quarter, up from $952 million on Sept. 29, which exceeded total debt outstanding of $798 million by about $300 million, according to Moody's Investment Service.

    But Apple's inventories have ballooned, to $1.95 billion at the end of the December quarter. While Apple management has steadily maintained that this is good inventory, meaning it can be used in current products, its value as an asset could be diminished if the company's downward spiral continues.

    In a memo to employees distributed earlier this week, Apple's president and chief executive, Michael Spindler, emphasized the need to shrink this inventory.

    "We really need you to work with your management and customers to focus on programs, strategies and any other activity that will move our existing inventories," Spindler wrote. "This should be everyone's No. 1 priority, as it directly affects our cash position. I cannot over express the absolute urgency."

    One recently departed Apple executive said that the seeming fire-sale price that Sun was offering was reflective of Apple's internal condition.

    "They know what Wall Street doesn't," he said. "The company's probably not worth more on its current course."

    And Todd Bakar, an analyst with Hambrecht & Quist, said only the persistent belief that a deal is imminent has kept the stock as high as it is. "If you removed all the acquisition premium, the stock would probably be in the low-20s," he said. "I think Apple sees the writing on the wall."

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