Sperry Silent on Burroughs Takeover Bid; Resistance Seen
Sperry Corp., in keeping its silence over a surprise $4.06-billion purchase offer from Burroughs Corp., triggered a debate among market analysts on Tuesday over whether the pioneer computer maker might be planning to resist the bid.
Clearly, Sperry has not rushed to embrace the offer. Furthermore, Burroughs’ attempt to buy the New York-based company last summer for $3.5 billion was coolly received by Sperry President Joseph Kroger, who in recently published interviews has insisted that Sperry will remain independent.
“My sense is that Sperry will fight--it won’t be a friendly merger,” predicted Thomas Crotty, an analyst with the Gartner Group of Stamford, Conn. “They resisted before, and I think they will again.”
If so, Wall Street seemed to be relishing the contest. The Burroughs bid set off a trading frenzy on the New York Stock Exchange that has driven up Sperry stock by $16.25 a share to $71.25 in two days. Trading volume on Tuesday alone was 15.7 million shares--30 times the average daily volume recorded during the previous week.
“What that tells me is that the market is betting that Burroughs will try a hostile takeover if they don’t get a friendly one,” said Jan Lewis, president of Palo Alto Research Group in San Jose.
“But I’d be surprised by resistance,” she added. “The deal’s a good one for Sperry stockholders.”
The question is whether the deal will be regarded favorably by management at Sperry--in particular by Kroger, the former Sperry salesman who is considered the heir apparent to take over from Gerald G. Probst as chairman of the company.
Alan Lowenstein, an analyst with American Fund Advisors of New York, said friction between Kroger and Burroughs Chairman W. Michael Blumenthal might prompt Sperry management to look for a “white knight” in the form of an alternate merger partner--possibly NCR.
One East Coast analyst called the merger attempt “a contest of egos.” He said Blumenthal, the former secretary of the Treasury in the Carter Administration, has been largely unsuccessful at restoring Burroughs to its place as the second-largest computer maker behind International Business Machines. “Blumenthal has a huge ego, and he wants to be No. 2,” the analyst said. “He couldn’t grow Burroughs into second place, so here he can do it all at once. It’s an ego thing.”
In a New York press conference Tuesday, Blumenthal tried to allay concerns about executive friction, saying that “we do see Sperry’s top management fitting into our management structure.” However, when he was asked about Kroger, Blumenthal said it “would hardly be appropriate” to speak about individuals.
So far, Sperry’s only public response to the offer has been to acknowledge that it “was not anticipated.”
Richard L. Robertson, Sperry vice president of communications, said Tuesday that the company would have no comment on the proposal. However, when asked whether Sperry might be considering rejecting the bid, he would say only that there “has been a good deal of speculation since Burroughs withdrew its last formal offer.”
Previous Rejection
Technology analysts meeting this week in San Francisco recalled that Sperry employees were delighted last June when the company spurned Burroughs’ original offer, and one analyst predicted that obtaining loyalty and commitment from Sperry people might prove a difficult task for Burroughs. In fact, the difficulties of a Burroughs-Sperry marriage were widely noted by analysts interviewed by The Times on Tuesday.
“It’s sure not going to be a marriage made in heaven,” Gartner Group’s Crotty said. “It’s going to be very difficult for them to make this merger work without both of them losing momentum in the marketplace.”
Skip Bushee, an analyst with Infocorp of Cupertino, Calif., said there will be “many hurdles to overcome. They have separate and incompatible product lines, and there would be technical difficulties in bringing those two together.”
The analysts seemed most perplexed by Blumenthal’s announcement Tuesday that no attempt would be made to merge the Burroughs and Sperry product lines or their separate sales organizations. The Burroughs chairman said consolidation elsewhere would “achieve significant economies of scale in support, planning and technical activities.”
“What he’s saying is that they’re going to keep the same products and the same salesmen that have been going up against IBM--and losing,” Crotty said.
Among Sperry’s attractions to its Burroughs suitors, analysts suggested, are Sperry’s defense business, its relative strength in European markets and its expanding technology agreements with Japanese companies.
Sperry’s Defense Business
“I think the defense business is nothing to sneeze at--especially given Blumenthal’s abilities and contacts in government,” noted Lewis of Palo Alto Research Group. “The synergy of Blumenthal’s background and Sperry’s defense business might be the one area that yields real added strength from the combination.”
The prospect of Burroughs taking on substantial debt to obtain Sperry prompted Moody’s Investors Service to place both companies under review for possible downgrading of their debt ratings Tuesday. Moody’s said its review “is focusing on the additional debt that Burroughs will incur to finance the acquisition, the demands that will be placed on the cash flow of the combined companies to service the debt and Burroughs’ plan to sell assets to reduce debt.”
Blumenthal conceded that the new company’s initial debt-to-capital ratio would be “higher than we’d like”--about 60%, compared to 30% now. But he predicted that combined sales and cash flows would restore the ratio to current levels within two years.
Times staff writers Michael A. Hiltzik in New York and Donna K. H. Walters in San Francisco contributed to this story.
IBM* Burroughs* Sperry** Revenue $50,056,000,000 $5,037,700,000 $5,740,800,000 Net income 6,555,000,000 248,200,000 46,800,000 Per share share $10.67 5.46 0.82 Employees 405,535 60,500 77,716 52-week $117.37 1/2--161.87 1/2 52--71.87 1/2 45.50--65 stock range: Stock price May 6, 1986: $154.25 63.50 71.25
* Year ended Dec. 31, 1985
** Year ended March 31, 1986
