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Sun's largest investor ups stake, seeks active role

Southeastern Asset Management increases its stake to 21.2 percent and wants to talk to Sun management and third parties about maximizing Sun's shareholder value.

Sun Microsystems' largest shareholder, Southeastern Asset Management, has upped its stake and taken a more aggressive attitude toward its investment, indicating that it will take an active role in maximizing shareholder value through talks with management and third parties, according to a filing with the U.S. Securities and Exchange Commission on Wednesday.

Southeastern, an investment advisory service and self-described value investor in large-cap, mid-cap, and small-cap companies, increased its stake to 21.2 percent from its previous investment in September of 17.3 percent.

In noting the increased stake and change in its status as a passive investor to one that wants the flexibility to take a more active role, Southeastern stated in its filing:

In this situation, Southeastern has talked to the issuer's management, and will have additional conversations with management and/or third parties, regarding opportunities to maximize the value of the company for all shareholders.

To obtain the flexibility to discuss various alternatives, including any of the actions or transactions enumerated in clauses A through J of Item 4 of Schedule 13D, with the Issuer's management or with third parties, Southeastern is converting its ownership filing on Schedule 13G to a filing on Schedule 13D.

Converting to a passive investment stake, as indicated in Schedule 13G, to a Schedule 13D allows Southeastern to take an active role in which it can work with other investors. Southeastern obviously isn't a happy camper, especially after Sun's stock took a dramatic 17.5 percent plunge on an earnings warning Tuesday to close at $4.77 a share.

Sun's stock is trading below $5 a share for its second consecutive day. And in certain cases, institutional investors, such as pension funds and asset managers, are prohibited from owning stock in companies that trade for less than $5 a share.

"We have talked to (Southeastern) and will consider their input, just like we consider the input from all our investors," said Dana Lengkeek, a Sun spokeswoman. She declined to comment on the content of those discussions with Southeastern, as well as with other institutional investors. She added Sun speaks to its investors on a regular basis.

According to SEC filings, Southeastern initially took a . That's when the stock was trading around $13 a share.

Since then, Southeastern has steadily ramped up its investment as Sun's shares have continued to fall. In August, Southeastern noted in an SEC filing it had increased its stake to 16.5 percent and in Sun's proxy statement last month, it was listed as a 17.5 percent stakeholder.

A spokeswoman for Southeastern Asset declined to comment on the company's increased stake and desire to play an active role in maximizing shareholder value at Sun, noting that the company does not comment on companies in which it has holdings.

But in a BusinessWeek story published earlier this month, a Southeastern Asset manager had this to say about Sun Microsystems:

Sun's largest shareholder is also optimistic. Southeastern Asset Management boosted its stake to 17 percent of the shares outstanding, because of Sun's rising cash flow and promising new product. "This is such a deeply misunderstood story," says Jason E. Dunn, one of the firm's managers.

This post was updated at 1:50 p.m. PDT with comment from Sun.

This post was updated at 2:27 p.m. PDT with information on Southeastern's history of acquiring Sun shares.

This post was updated at 3:53 p.m. PDT with a comment from Southeastern Asset.