Updated at 7:13 p.m. PDT, with comment from Sun Microsystems and market share information for both companies.
Sun Microsystems rejected IBM's formal buyout offer on Saturday, calling the bid insufficient and putting future deal talks at risk, according to a report Sunday in The Wall Street Journal.
IBM reportedly made a formal bid of $9.40 a share, or less, for Sun, which in turn rejected the offer and terminated Big Blue's right to exclusive merger talks, the Journal reported. IBM, in turn, withdrew its buyout offer.
In addition to holding a belief that the bid was too low, Sun apparently was also concerned that the terms of the offer provided IBM with too much flexibility in being able to walk away from the deal, the Journal reported.
Prior to reports that the companies were in merger talks, Sun Microsystems had closed at $4.97 a share and had been trading below $5 a share for a number of months.
Whether Sun would entertain resuming merger talks if IBM sweetened the deal was not clear, the Journal noted.
A Sun Microsystems spokeswoman noted the company does not comment on rumors or speculation. IBM representatives did not return calls seeking comment.
Sun's reported concerns over structuring a deal that would allow IBM to easily walk away from a merger agreement should not be taken likely, say antitrust attorneys and industry analysts.
"It's obvious this deal will get a second request (for more information) from regulators. And once it does, it'll take six months, at a minimum, to a year before a decision is reached," said one attorney who specializes in antitrust matters. "Sun can be twisting in the wind for a year."
A second request for information signals to the parties antitrust regulators are formally investigating the transaction to decide whether to challenge it in court.
IBM holds nearly 32 percent of the worldwide server market, based on 2008 factory revenues, and Sun 10.1 percent, according to IDC. Combined, the two companies would account for nearly 42.1 percent of the overall $53.3 billion server market.
And within the high-end Unix server market, IBM held a 37.2 percent slice of the market last year and Sun 28.1 percent, representing a combined 65.3 percent should a merger go through, according to IDC. Unix servers, while on the decline, still accounted for the majority of high-end, non-x86 server systems, last year, according to IDC.
And if bets were made on whether antitrust regulators would allow IBM and Sun to merge, the antitrust attorney said he would "bet against it."
On the storage front, in which the industry generated $27.7 billion in revenues last year, IBM ranked third with 16.2 percent of the market, while Sun ranked a distant No.5 with 6.1 percent of the market, according to IDC. A combination of the companies could push IBM to the No. 1 spot in storage, surpassing Hewlett Packard with its 19.6 percent market share.
When it comes to storage technology using tape drives, which amounted to $987 million in revenues for the first three quarters last year, IBM held 66.6 percent of the market and Sun a 33.4 percent share slice, according to IDC. Combined, the two companies would hold 100 percent of the tape market.
Disagreements over setting the price of a break-up fee, a penalty the suitor or target company would have to pay to undo a merger agreement, are not new and have been known to occasionally derail merger talks, the attorney noted.