March 18 (Bloomberg) -- Sun Microsystems Inc. surged the most in more than 20 years in Nasdaq trading after the Wall Street Journal said International Business Machines Corp. may buy the computer-server maker for at least $6.5 billion.

The offer would value Sun at close to double the $4.97 closing price yesterday, the newspaper said, citing people familiar with the plan. The companies are in talks and may not reach a deal, the Journal said. .

The acquisition of Sun, which would be the biggest in IBM’s history, would help the company widen its lead over Hewlett- Packard Co. in the $53.1 billion market for servers, which run networks and Web sites. IBM Chief Executive Officer Sam Palmisano said last week that he plans to “go on offense” amid the economic slump, acquiring and investing in research.

‘It all has to do with scale, because at the end of the day, there’s only so much of the pie that you can have,” Morningstar Inc. analyst Rick Hanna said in an interview from Chicago. “Sun was ripe for consolidation just because it lacked scale to really sustain its investment.”

Sun rose $3.27 to $8.24 at 9:31 a.m. New York time in Nasdaq Stock Market trading. Earlier the stock surged as much as 69 percent, the most since Sun’s 1986 initial public offering. IBM declined $2.94 to $89.97 on the New York Stock Exchange.

Both companies are seeking growth in areas such as cloud computing, where providers rent out computing and storage space so customers don’t have to buy their own equipment. Sun plans to introduce its own Sun Cloud Compute service this year over the Internet. Last month Armonk, New York-based IBM created a separate division to focus on the business.

Shrinking Market

A purchase would give Palmisano a greater share of a shrinking market. Last quarter, server sales declined 14 percent, the largest drop since the aftermath of the dot-com bust. Corporations have held off on technology purchases to shield themselves from the deepening recession, the worst since at least 1982.

“It’s the war of the data centers, and an acquisition would leave only two or three players left,” said Robert Jakobsen, a Silkeborg, Denmark-based analyst at Jyske Bank A/S. “The stock market has not been too good to Sun in the last 12 months,” allowing IBM to buy it at a discount, he said.

Analysts on average project Santa Clara, California-based Sun, the fourth-biggest maker of servers, will post its third straight quarterly loss as the recession crushes corporate demand. Chief Executive Officer Jonathan Schwartz is trying to weather that by slashing as many as 6,000 jobs and offering lower-priced products.

Biggest Acquisition

Paying at least $6.5 billion for Sun, or about $8.75 a share, would be the biggest acquisition in IBM’s history of more than 100 years. The company bought Cognos Inc. for $4.9 billion last year to compete with Oracle Corp. and SAP AG in providing software that tracks corporate performance.

IBM had $12.9 billion in cash and marketable securities at the end of last year, compared with Sun’s $2.64 billion.

Arlene Wainstein, a spokeswoman for IBM in Paris, and U.S. representative Ian Colley declined to comment. Shabita Wu, a spokeswoman at Sun in Taipei, declined to comment, while Kristi Rawlinson in the U.S. didn’t immediately return a call seeking comment before regular business hours.

Companies in the technology industry have announced $3.6 billion of acquisitions so far this year, less than a fifth of the value of takeovers announced in the same period a year earlier, according to data compiled by Bloomberg.

Drugmakers have led merger activity this year, with Pfizer Inc. agreeing to buy Wyeth for $64.2 billion and Merck & Co. acquiring Schering-Plough Corp. for $41.1 billion. There have been 39 software deals this month totaling $75 million, according to Bloomberg data.

Hewlett-Packard

The acquisition would be the biggest in the industry since Hewlett-Packard agreed to buy Electronic Data Systems Corp. for $13 billion in May last year, Bloomberg data show.

Buying Sun Microsystems would boost IBM’s share of global server sales by 9.6 percentage points to 43 percent, widening the lead over Hewlett-Packard’s 30 percent, according to fourth- quarter estimates at Credit Suisse Group AG today.

Dell Inc. ranked third in the industry with a share of 10.7 percent, followed by Sun and Fujitsu Ltd., according to the report. Global sales of computer servers will probably fall 17 percent to $44.2 billion this year as the global recession drives down demand and prices, according to the Credit Suisse report.

“The bigger you are the better things are,” said Richard Nguyen, an analyst at Societe Generale Securities in Paris. Nguyen has a ”sell” rating on IBM stock.

In January 2007, an investment fund owned by Kohlberg Kravis Roberts & Co. bought $700 million of Sun’s convertible notes. James H. Greene Jr., a KKR general partner, has been on Sun’s board since last year. Sun founder and former CEO Scott McNealy is chairman of the company, and its single biggest investor, with about 14.1 million shares as of August last year.

In recent months, Sun Microsystems has contacted a number of technology companies with the aim of being acquired, people familiar with the matter said, according to the Wall Street Journal.

To contact the reporter on this story: Robert Valpuesta in London at rvalpuesta@bloomberg.net; Katie Hoffmann in New York at khoffmann4@bloomberg.net

Last Updated: March 18, 2009 09:40 EDT