Shares of Sun Microsystems Inc tumbled 23 percent on Monday after the company rejected rival computer and software maker International Business Machines Corp's $7 billion offer.

Sun shares fell to $6.52 in early morning trading after Sun pulled the plug on the deal which might have spelled the end of an era for a networking company that was once synonymous with the Internet.

The buyout was seen as a means for survival for the once-storied Silicon Valley company, which has been losing market share.

Sun was unhappy with IBM's offer of $9.40 per share or below, and it was unclear if talks would resume, according to a source, who was not authorized to speak publicly about the matter. The bid represented a premium of up to 89 percent on Sun's shares before deal talks were first reported last month.

Sun shares had risen to $8.49 on Friday, from $4.97 on March 17, a day before talks between the two technology companies were first reported. The Wall Street Journal had previously said IBM's original bid was $10 to $11 a share.

The deal may have helped IBM bolster its offering of computer servers, storage equipment and software as competition heats up with rivals like Hewlett-Packard Co.

Sun rose to prominence selling high-end computer servers in the 1990s but never fully recovered from the dot-com bubble burst earlier this decade. Analysts also say it failed to fully capitalize on its software assets including Solaris and Java.

Failed talks with IBM could mean that Sun will need to find another buyer, and contend with a lower offer. But no bidder other than IBM has emerged in the months that Sun has been shopping itself.

(Reporting by Franklin Paul)

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