KKR Likes Sun Micro

Updated from Jan. 23

Shares of Sun Microsystems (SUNW) surged 7% early Wednesday after the struggling tech company scored a $700 million private placement from private equity firm Kohlberg Kravis Roberts.

Sun said the investment will take the form of $350 million of convertible senior notes due in 2012, and $350 million of convertible senior notes due 2014. The notes will be convertible, at the holder's option during specified periods, at a price of $7.21 a share.

KKR will also nominate a member to Sun's board of directors when the transaction is complete.

On a conference call with financial analysts after the bell, Sun CEO Jonathan Schwartz said the company planned to "use the proceeds to pursue strategic opportunities for growth."

"We certainly don't need the money," he said. "It's an opportunistic transaction."

Schwartz said the deal will help raise awareness of the company in the financial services community.

Sun said it will use a portion of the offering proceeds to fund convertible note hedge transactions which it entered into with the private placement transaction. These transactions are intended to offset the dilution to Sun's common stock resulting from potential future conversion of the notes, the company said.