Sun Engulfs StorageTek

Sun Microsystems(SUNW Quote) threw a shock into Wall Street Thursday, announcing a definitive agreement to buy Storage Technology(STK Quote) for $4.1 billion in cash.

The companies billed the combination as a way to match StorageTek's data security and archival search products with Sun's high-end server and storage lines. The acquisition answers lingering questions about what Sun would do with about $3.1 billion of balance sheet cash.

The purchase price comes out to $37 a StorageTek share. The stock closed at $31.23 Wednesday and was recently fetching $36.68 on Instinet, up $5.45, or 17.5%. Sun added 15 cents, or 3.9%, to $4.05.

The $4.1 billion takeout price includes the purchase of StorageTek's outstanding stock options. Sun sees the transaction as accretive to non-GAAP earnings in the first 12 months after closing, which is expected to occur in the late summer or early fall.

Sun's move should put an end to rumors the company's CEO, Scott McNealy, planned to take his company private. Sun's relatively high amount of per-share cash and the stock's inability to clear a $6 ceiling over the last two years had fueled the never-confirmed speculation.

"The products, services and solutions currently offered by Sun and StorageTek complement each other, and form one of the most comprehensive storage and data management portfolios in the industry," the company said in a release.

"Coupled with StorageTek's new line of data protection and intelligent archive products, including its Storage Resource Management software and virtual tape solutions, Sun customers will have the ability to implement comprehensive ILM storage infrastructures with intelligence," Sun said

StorageTek's sounded resigned, if not thrilled.

"StorageTek's decision to combine with Sun reflects our determination to act in the best interests of our customers, shareholders, employees and other constituents," the company quoted CEO Patrick Martin saying. "I strongly believe that for StorageTek and all our constituents, this is the right transaction, with the right partner, for the right reasons, at the right time."