“JAVA” is, of course, the ticker symbol for Sun Microsystems. The news is that Southeastern Asset Management, along with the subsidiary Longleaf Partners, has become the largest Sun stockholder in recent weeks by accumulating a stake totaling 14% (107,719,299 shares) of the company. There isn’t a lot of information out there on Southeastern; their public persona is as the parent company of Longleaf Partners Funds, a mutual fund company that “Invests primarily in mid- to large-cap U.S. companies believed to be significantly undervalued.”

A recent SEC filing on June 6th disclosed that Southeastern passed the 5% ownership threshold and thus was compelled to report their total holdings. This makes them the largest single investor in the company by a factor of almost 2x. The next largest institutional holder, Lord Abbet LLC and their Affiliated Fund, has slimmed down their JAVA holdings by about 25% in the last reporting period. Other institutions are also cutting back on Sun stock in recent months, according to the WSJ institutional investor tracking service. Insider holdings (McNealy, Jonathan, etc.) have negligible holdings relative to the public float and their shares.

Taking a cursory look at Longleaf didn’t reveal a whole lot. They are value investors, looking to buy solid companies on the cheap and then reap the rewards when the rest of the investment world catches up. They have large positions in a number of companies, but don’t seem to take an activist role. They also aren’t technology-centric; their holdings are widely diversified in a number of different industry sectors. So why take this big position now? And what are their plans for the future, if any?

While much of what follows is speculation, it’s undeniable that 14% is a big chunk of stock, and this stake makes Southeastern Sun’s largest stockholder by far. The question is whether they will be a passive or active investor. Right now, KKR, by dint of their $700 million convertible bond deal in ’07, has a seat on Sun’s board of directors. Former KKR employee Michael Marks was KKR’s rep on the board; he left KKR – but kept his Sun seat. KKR’s new director, James Greene, has been on the 11-person board since early this year. I would think that Southeastern’s pile of stock would certainly qualify them for at least a seat at the table, but it’s unclear if this is their intention.

It’s possible that this is the first move towards a takeover of Sun, either friendly or hostile, with the end result probably being a private Sun Microsystems. Sun executives, notably co-founder Scott McNealy, have privately complained that “Wall Street just doesn’t get us,” and that the company’s strategy isn’t compatible with the need to invest in projects that don’t have an immediate payoff. Wall Street has rewarded Sun’s anemic results with a steadily declining stock price and market capitalization. We’ve seen a blip to the upside in the last few days, but the general trend has been down, down, down. Right now, Sun is the only major server vendor that trades at a discount to revenue. This means that current revenue (should be around $13 billion for FY’08) is more than their market capitalization of (current stock price x number of outstanding shares) $7.9 billion. So JAVA is selling cheap. And the story gets better when you add in Sun’s cash hoard of almost $3 billion, plus the amount that could be earned by selling off assets or lines of business, and consider how further cost-cutting (read: headcount reduction) might lower ongoing costs. So while we’re definitely speculating, there might be something to the idea that Sun is ripe for a takeover…It’s definitely interesting enough to continue watching…