CA launches unsolicited $9 billion bid for CSC
- By John Monroe
- Feb 15, 1998
Looking to extend its capacity for "end-to-end" systems management, software vendor Computer Associates International Inc. last week made an unsolicited $9 billion offer to buy systems integrator Computer Sciences Corp.
The deal, in which CSC shareholders would receive $108 in cash for each share of common stock, would create a 50,000-person company worth $11 billion, according to CA.
CA, which markets CA-Unicenter and a variety of other systems management tools, wants to supplement its product offering with CSC's extensive services portfolio, CA chairman Charles B. Wang said.
CSC "certainly has the right mix of management consulting, systems integration and outsourcing," Wang said. "What we felt was the best and most expedient way to bring the benefits of what CSC employees can offer and CA employees can offer is to combine the two companies," he said.
During the last several years, CA has grown exponentially by buying more than a dozen systems management tools vendors, including the $1.8 billion purchase of Legent Corp., one of its prime competitors, in 1995.
By adding CSC's services to the mix, "we become the only vendor capable of offering platform-neutral products and services in an integrated and end-to-end fashion" with the ability to "install, implement and even outsource all of the activities related to end-to-end management," Wang said.
CA made the offer in a letter to CSC chairman and chief executive officer Van B. Honeycutt, which CA also published on CA's World Wide Web site. According to Wang, CA sent the offer to CSC's management and board of directors so they, in turn, could consider taking it to their shareholders. However, CA also said it would not rule out launching a hostile takeover should CSC management refuse the offer.
According to the letter, the two companies had been in discussions about a possible merger "over the last few months" but had not reached an agreement. "The CA board of directors has unanimously approved this offer," wrote CA president Sanjay Kumar. "Further, as I have previously informed you, CA has obtained the necessary financing commitments to consummate this transaction without delay."
A CSC spokesman declined to comment on the offer. However, according to a statement published on the company's Web site, "CSC's management, board of directors and professional advisers will evaluate the offer, and the board's response will be issued when that evaluation is complete."
The statement also said that "while there have been two brief meetings at CA's request, any suggestion that there have been negotiations or agreements between the two companies is absolutely false."
While it is unusual for a product-oriented company to buy such a large services group, the CA bid is not altogether surprising, several industry observers said.
"I think it supports [the notion] that growth in IT services is very strong going forward, and that is attracting a lot of attention from a lot of quarters," said William Loomis, an equity analyst at Legg Mason Wood Walker Inc., Baltimore.
In general, "size has become important," said Olga Grkavac, senior vice president with the Information Technology Association of America's Systems Integration Division. "Customers want full-service solutions; there you do need size," Grkavac said. "CSC would certainly be an attractive target if they want to be acquired."
However, CA likely faces a lot of challenges in trying to combine its resources with CSC, observers said.
A product company typically looks to "squeeze the customers" for more dollars, while the services company's livelihood depends on good relationships with its customers, one source said. While some companies have made the mix work, it often does not, particularly in the federal market, the source said.
Given the potential pitfalls in the match, several observers suggested CSC might try to refuse CA's offer and fight a hostile takeover. One way to do that, Loomis said, would be to "explore other options that would be attractive to CSC's shareholders." With CSC having been mentioned in acquisition rumors for many months, "now is the time CSC will evaluate all the offers," he said.