Walter Bauer ordered a stack of hot cakes from a waitress at Du-par's in Encino one morning last month, making it clear that he wanted the butter placed on the side instead of directly on his food. It was the kind of kind of crisp, authoritative instruction one would expect from a man used to being in charge.
Indeed, until last June, Bauer was running Informatics General, a $200-million-a-year computer software business based in Woodland Hills that employed 2,600 people in more than 25 offices worldwide. That job came to an end, however, when Dallas-based Sterling Software acquired the company in a hostile takeover.
Bauer, who will be 62 on Friday, now leads a quiet life at his home off Ventura Boulevard in Encino, working as a business consultant, serving as a director of a Menlo Park software company, raising money for charity and playing tennis. It's far from his life as chief executive who ran the fourth-largest independent company in the U.S. software industry, but Bauer says he's busy and happy nonetheless.
'Like Losing a Child'
Still, he sometimes broods when recalling how the firm he founded and nurtured for 23 years was taken away. "It was like losing a child you raised to manhood," Bauer said.
Bauer says the fight drained him emotionally, bruised his ego and made him cynical about the system he says allows healthy companies to become easy prey for takeover specialists. Yet he's also quick to add that he isn't a sore loser, that he lost a fair fight to an opponent who played within the rules. It's the rules he doesn't like.
To make the takeover game fairer, Bauer supports new federal laws and regulations. For instance, Bauer advocates requiring the buyers of a company to pay all stockholders the same price for their shares to prevent them from acquiring control of a firm at one price and getting the rest of the stock more cheaply.
Frank Talk about Takeover
Bauer took his lawyers' advice and kept his mouth shut publicly while the takeover fight was on, but now he speaks freely about the battle and what it did to him. Last month, he gave a talk to the Los Angeles Rotary Club and plans to address a data processing conference in Houston in May.
Bauer's story provides a glimpse into what it is like to be an executive under siege in a takeover war. In Bauer's case, it threw his daily routine into disarray.
He says he never slept more than two hours at a stretch during the two-month battle with Sterling because he couldn't stop thinking about the endless meetings he needed to schedule and telephone calls he had to make.
A typical workday started at 6 a.m. and often ended about midnight. Sometimes he rose as early as 4 a.m. to call investment bankers and attorneys in New York as they were arriving at work. Weekends also were spent on the telephone talking to advisers.
Bauer said he was swamped by a confusing series of events that began "taking on a life of their own." Snap decisions were made that sometimes backfired, like the time Informatics and Sterling each wasted $80,000 on full-page Wall Street Journal ads that never ran because they lacked necessary approval from the Securities and Exchange Commission.
Pressured Decision Making
"There was so much going on that there wasn't time to get the SEC approvals," Bauer said. "Time seems to collapse. You are trying to do things that ordinarily would take weeks in just a matter of days."
The events leading up to the takeover started in late 1983 and early 1984. After seven years of improved earnings, Informatics stumbled. Net income fell 45% in 1984 to $4.7 million, dragged down by two unprofitable divisions. One casualty was Informatics President Bruce T. Coleman, considered Bauer's likely heir, who was fired by the board of directors.
The company's stock, which traded as high as $34 a share in June, 1983, fell to less than half that price by early 1985. The company developed a reputation among some analysts as a laggard that was too diverse and fat with cash.
Informatics raised $50 million in two stock offerings in 1982 and 1983 to buy other software companies, but it couldn't find the kind it wanted.
Ripe for a Takeover
By early 1985, the company had $40 million in cash, or about $8 a share, on its books at a time when its stock was trading at about $16. That made the company a sitting duck for a corporate raider, even though it had taken some anti-takeover measures.
"It's not a good idea to have a large amount of cash in a company for such a long time without some plan to use or distribute it," said Clarence W. Spangle, retired Memorex chairman and a member of Informatics' board of directors during the takeover fight.
Several computer industry firms approached Bauer about a merger, including Sterling. But Bauer resisted. He said he didn't think shareholders would get a good deal then because the stock was selling at such a low price.
In early April, Bauer noticed unusually heavy trading in Informatics' stock and braced for a bid. On April 11, Bauer went to a breakfast meeting in Beverly Hills with Sterling Chairman Sam Wyly and the company's president, Sterling Williams, both of whom he had known for years. As Bauer ate his eggs, the two men informed him that their firm had just bought nearly 10% of Informatics' stock and pitched a friendly, $125-million buy-out bid.
Bauer wasn't surprised that someone was making a bid, although he didn't expect it to come from Sterling, a company only one-tenth Informatics' size. Bauer was convinced that the suitor was another company, which he still refuses to identify, that had previously expressed an interest.
Bauer said he would get the companies' lawyers together to discuss the $25-a-share offer. But, within a few days, Informatics' board rejected the bid as inadequate.
Later that month, Bauer said, he found out that he would face a battle for control of Informatics when Sterling's investment bankers told Informatics' financial advisers that Sterling was planning a proxy fight. The word was that Sterling would try to oust Bauer and Spangle from Informatics' board and defeat anti-takeover proposals that shareholders were to consider at the company's annual meeting in May.
Sterling eventually sued Informatics to obtain its list of shareholders. Informatics, in turn, sued Sterling for $5 million. It alleged that Wyly offered Bauer financial incentives, including a 10-year job guarantee, to endorse Sterling's offer.
In addition, full-page newspaper advertisements ran. An Informatics ad cited an SEC consent decree that Wyly signed after being accused by the agency of violating federal securities laws.
A Fight Won, a War Lost
At that point, Bauer said, he knew Informatics was history. He said he realized that he had to keep Informatics on the block or its institutional shareholders, owners of 70% of the stock, and speculative investors in the company would side with Sterling. And, even though he eventually won the proxy fight at the May annual meeting, Bauer says he knew the cause was lost.
Had Sterling gone away, the stock price would have plunged, Bauer says, leaving the firm open for another hostile bid. Bauer tried to organize a buy-out himself, but it failed when his investors refused to offer more than $25 a share. He also failed in his efforts to find a friendly buyer for the company. Bauer says he kept fighting Sterling because, along with wanting a higher bid, he didn't think the two companies were a good match.
Sterling, however, eventually raised its offer to $27 a share, or $135 million, and Informatics' directors accepted it on June 19. That night, Bauer dined with Wyly and Williams at a club that Bauer belongs to in Westwood, and Bauer picked up the tab. Bauer signed the agreement at 1 a.m. the next morning, and the software industry had its first hostile takeover.
Weary from the battle, Bauer took a three-week vacation to Europe. He officially left Informatics on Sept. 13, when the sale was final.
Retrospect and Regrets
"It was one of the unhappiest days of my life," he said.
In the months that followed, Bauer sometimes found himself second-guessing his moves. Looking back, he regrets not speaking out during the battle to defend what he felt was unfair criticism of the company's performance. He also regrets that the ads Informatics ran during the takeover battle "were not as gentlemanly" as the ones Sterling ran, although he refuses to specify why.
Bauer, who earned $271,411 in 1984 as Informatics' chairman, did well financially in the acquisition. Although he won't disclose specific amounts, he says he received "several million dollars" from a so-called golden parachute severence agreement he had with Informatics and from the sale of his stock.
According to Informatics' final proxy statement, Bauer had an agreement providing that, if he were ousted in a takeover, he would get his annual salary until May 21, 1989. In all, that would amount to about $1.1 million. The proxy statement said he also would receive another payment of unspecified size and annual retirement benefits at age 65.
Company Changed Name
In addition, it said, Bauer owned 60,510 shares of Informatics early last year and had options to buy nearly 40,000 more. Bauer calls what he received reasonable, considering that he founded Informatics and guided it for 23 years.
He said what is most painful for him now is the realization that neither the company he started nor its name exists any longer. Earlier this year, Sterling changed the name of the remnants of Informatics in Canoga Park to Answer Systems.
Despite that pain, Bauer acknowledges: "When you become a public company you have to understand that you have outside owners and that you have to play by the rules. There are a lot of people who don't understand that, especially a lot of founders of companies. They don't understand that they aren't the masters of their own fate anymore."