For years, Informatics General Corp. of Woodland Hills racked up big sales and modest profits in computer software, building a sprawling and cash-rich business under its founder and chairman Walter F. Bauer.
But Bauer, a math whiz said to be among the first to sell off-the-shelf software, was also building a prime takeover target. And now a small Dallas software company has the California company in its sights.
Sterling Software Inc., whose management includes a former top Informatics executive, is offering $25 a share, or more than $125 million, for the 5.3 million shares of Informatics' stock. Wall Street analysts say it has a good chance of getting what it wants.
They also say a takeover would not be so bad. They describe Informatics as a chronic underachiever and predict that any newcomers would probably try to shed slow-moving product lines, reorganize the company, and improve earnings.
'Poorly Focused Company'
"Historically, they have been a poorly focused company," said John J. Girton, who follows Informatics for Birr, Wilson & Co., a San Francisco brokerage. "Management has historically not managed the company to good return on equity or earnings growth . . . I think Sterling would be able to manage the company to better value for shareholders."
Sterling was founded in May of 1983, and since then has acquired three small California software companies, including Dylakor Inc. of Granada Hills.
Sterling had earnings of $1.4 million on revenue of $18.7 million last year, making it about a 10th the size of Informatics, which earned $4.7 million on revenues of $191.2 million last year.
But Sterling already holds 9.3% of Informatics, and analysts are impressed with the track record of its chairman, Samuel E. Wyly, a veteran software entrepreneur. Most of the rest of the stock is held institutionally, with Bauer and other Informatics directors and officers controlling just 4.9%, according to a proxy statement.
Trading at Book Value
Until the recent run-up sparked by the takeover bid, Informatics stock was trading at about its Dec. 31 book value of $17.23, even though the stock of many software makers trades well above book value.
"It was just extremely cheap," said Charles Frumberg of Mabon, Nugent & Co., a New York brokerage. Trading on the New York Stock Exchange, the stock closed at $23.25 Monday.
"It's an attractive takeover target," agreed Robert O'Connor of Tucker, Anthony & R. L. Day, a brokerage in Stamford, Conn. "It has not been a particularly well-managed company. On the other hand, it's a company that has developed substantial revenues and has been profitable for many years."
The analysts say Informatics has not done well enough, however, considering its size and scale. The company has 2,600 employees and offices in 30 cities in the United States and Canada, and in nine countries overseas.
But one thing that makes Informatics so attractive is the $38 million in cash showing on its balance sheet as of Dec. 31. The figure is below $30 million now, the company says, but such cash holdings are still large for a company that size, analysts say. What's more, Informatics has little long-term debt.
One asset on Sterling's side of the balance sheet is 55-year-old Werner Frank, who helped found Informatics in 1962 and left two years ago to form his own consulting business. He is now executive vice president of the Dallas company, giving it an intimate knowledge of his old employer. Frank, who heads Sterling's California operations from a Calabasas office, declined to discuss the takeover.
A Sterling spokesman, Ray Hannon, said Sterling is still considering whether to proceed with an unfriendly takeover.
Informatics is not saying much about the takeover bid, except that it was unsolicited, and that $125 million is not enough.
The firm has proposed anti-takeover measures for shareholder consideration at its next annual meeting, scheduled May 9. Bauer himself was unavailable for comment, but other company officials defended his management.
"We're not a high-flying company," said Ronald S. Freeman, Informatics' vice president for marketing. "We don't take tremendous risks."
'A Complete Redo'
He also said there have been some changes lately. "We were an unfocused company. We were like a loose federation. But in August there was a complete redo of the company."
Company president Bruce Coleman left--Bauer, 61, is now chairman and president--and Informatics was divided into two major products groups: "applications," responsible for the company's profitable legal and business management software and hardware; and "systems," handling programming, computer communications and other services to the federal government and large corporations.
Several unprofitable units were sold off, including one that sold software to the garment industry in New York, and another that sold software to life insurers and once led that field. Informatics' losses from the discontinued operations came to $1.6 million last year. Other losses stemmed from high costs and low sales of a new software product, the Answer series, designed to let small computers talk to big ones.
The earnings of $4.7 million, or $.82 per share, last year, were down from earnings of $8.5 million, or $1.67 per share, in 1983 and $5.4 million, or $1.49, in 1982.
But company executives and others outside the company point to steady sales growth at Informatics that gives the company good potential. Its software--and, increasingly, the hardware that goes with it--continue to sell and revenues last year were $191.2 million, up from $152.1 million in 1983 and $129.3 million in 1982.