Apple expected to call off talks on Sun buyout plan

DAVID USBORNE

New York

Talks between Apple and Sun Microsystems on a buyout plan that would have in effect merged the world-famous Apple name out of existence are expected to be formally suspended today in the wake of the appointment late last Friday of Gilbert Amelio as the company's new chief executive and chairman.

Sources close to Mr Amelio, who comes to Apple from National Semiconductors where he has been chief executive since 1990, say he is likely to attempt in the short term at least to solve Apple's manifest problems from the inside and while retaining its independence. Mr Amelio replaces Michael Spindler, chief executive since 1993, who has received most of the blame for Apple's recent difficulties.

The change of the guard at Apple was confirmed by the company late on Friday, hours after the close of markets and a full business day after it was foreshadowed in several US newspapers. Rumours of the impending ousting of Mr Spindler prompted a small rally in Apple shares which closed higher on the Nasdaq market at $29.50 on Friday evening.

The price for spurning Sun Microsystems, which had been in talks with Apple since last Autumn, is likely to be swift action by Mr Amelio to restructure the company, probably entailing new redundancies on top of the 1,300 job losses announced by Mr Spindler last month.

The crisis at Apple sharpened early last month when it reported a $69m loss for the quarter ending 29 December which included the Christmas retailing period and should have been strong.

The company, which last week saw its credit rating downgraded to junk status, has also warned of additional red ink in the first quarter this year.

Even as recently as 10 days ago at a raucous annual meeting of shareholders, the Apple board defended Mr Spindler, even though he came under fierce attack at the meeting from some important institutional investors. But board members began to question the wisdom of hanging on to Mr Spindler at a secret crisis meeting in a New Mexico hotel the next day.

The merger option also became less attractive as Apple's share value continued to sink. Last week, Sun Microsystems was reported to have proposed a straight stock-swap transaction that would have valued Apple at a meagre $23 a share.

Apple board members were put off, in part, because of fears that selling the company for so low a price might have triggered an avalanche of shareholder law suits.

If the Sun Microsystems deal could not be done, the sacking of Mr Spindler came to be the only remaining option for the board. The crunch came at another secret board meeting at the St Regis Hotel in Manhattan last Wednesday. It remains unclear whether Mr Spindler had to be pushed, or if he resigned voluntarily. He suffers from a heart condition and his wife has cancer.

The board chairman, Mike Markkula, meanwhile volunteered to become vice- chairman and surrendered his chairmanship to Mr Amelio, thus giving him full control.

Among those predicting that Mr Amelio will kill all takeover talks, is Regis McKenna, a Silicon Valley publicist and venture capitalist who originally iniatiated contacts between Apple and Sun Microsytems. "Gil thinks he can fix Apple's manufacturing problems," Mr McKenna told the New York Times yesterday.

Wall Street is expected meanwhile to cheer the appointment of Mr Amelio who has a reputation as a corporate "turnaround artist". He has been credited with the virtual rescue of National Semiconductors which was on the verge of oblivion when he took control of it.

Robert Herwick, of Herwick Capital Management in San Francisco, said: "The pump speed [at Apple] has picked up, so the ship isn't sinking at the moment, but it still has holes under the waterline."

Rick Whittington, of Soundview Financial in Stamford, Connecticut, said: "Amelio is a Mr Fix-it. Obviously Apple, according to its stock market price, needs fixing."

Mr Amelio has several options for restructuring at Apple where executives have been keen to focus on software.