Burroughs Bid Rejected by Sperry as Inadequate : Target Firm Plans Higher-Priced but Conditional Offer to Buy Back a Portion of Its Own Shares

Sperry Corp. rejected rival computer maker Burroughs Corp.’s $4.06-billion takeover offer Wednesday and, in an unusual defensive maneuver, made a higher-priced but conditional cash offer for a portion of its own stock.

Calling Burroughs’ week-old offer “inadequate,” Sperry’s board of directors said it would offer to buy 47% of its own stock for $80 a share--but only if Burroughs first purchased 53% of the stock at a $70-a-share price and if other conditions were met.

They include Sperry receiving financing for the deal and “other significant conditions” that will be disclosed soon, when Sperry files a formal offer with the Securities and Exchange Commission, the New York-based company said in a statement.

It was Sperry’s first response to Burroughs’ May 5 offer to take over the company. Two days later, Burroughs initiated a hostile bid for Sperry’s stock. Burroughs offered $70 a share cash for the first 33 million shares and equivalently valued preferred stock and debt securities for the remainder.

Burroughs Chairman W. Michael Blumenthal has said he wishes to merge the two companies to create a No. 2-ranked computer maker that would be able to compete effectively with International Business Machines and the big Japanese manufacturers. Burroughs, based in Detroit, is the nation’s sixth-largest computer maker; Sperry, which is also a major defense contractor, is ranked in fifth place.

Sperry said it has $800 million cash and is negotiating with a consortium of banks for an additional $2-billion line of credit. A spokesman declined to identify the banks or to further elaborate on the company’s plans.

Sperry said its offer would not apply to shares purchased by Burroughs.

If the two companies acquired the respective blocks of stock, Burroughs would theoretically take control of the computer and defense firm and would also be saddled with $2.36 billion in debt from Sperry’s stock purchases.

However, some analysts asserted that the maneuver was intended to force Burroughs to offer a higher bid. They said it represented an acknowledgement by Sperry’s management that they will not succeed in their fight to remain independent.

George D. Elling, an analyst with Oppenheimer & Co. in New York, said the Sperry offer would tend to stalemate Burroughs’ bid since shareholders would be reluctant to tender for $70 a share when they could presumably wait to be paid $80 a share.

“To me this is a very innovative strategy, but I think the goal is to force a better offer,” he said. The Sperry offer “is hollow, too full of conditions to be more than theoretical.”

Sperry’s stock moved up 62 1/2 cents a share to $73 in trading on the New York Stock Exchange, suggesting investors’ confidence that a better offer will be forthcoming.

Ulric Weil, a consultant with Weil & Associates in Washington, said the offer represents a “hidden admission that they haven’t been able to find the ‘white knight’ they’ve been looking for, and they’re ready to talk.”

“This deal will be consummated now,” he predicted, “but it may take a few weeks.”

Analysts said the offer also suggested that Sperry had rejected the other widely discussed defensive options, those of selling off the company’s defense or computer businesses as a means of making Sperry a less valuable prize. “They apparently decided the remaining company wouldn’t have been viable,” Elling said.

In its statement, Sperry Chairman Gerald Probst derided the Burroughs offer as a “two-tiered, front-end-loaded attempt to take control of Sperry at a wholly inadequate price.” Such a description is usually applied to offers that are intended to stampede shareholders to tender their stock quickly so they are not forced to accept the less favorable price offered in the second half of a two-part deal.

Blumenthal, in a separate statement, asserted that Burroughs’ offer was not such a deal and said Burroughs was willing to have its investment bankers work with Sperry’s to fix a fair price for the swap of Sperry stock for Burroughs stock and debt. He said Burroughs “is prepared to commence negotiations immediately.”