Board OKs Sweetened Offer of $4.8 Billion : Sperry Accepts New Burroughs Bid
Sperry yielded to a sweetened bid by Burroughs on Tuesday, accepting a $4.8-billion merger proposal that will create the nation’s second-largest computer maker.
Burroughs said it will pay $76.50 in cash and securities for each of Sperry’s 62.5 million shares. The offer was made Tuesday morning, following indirect negotiations throughout the long holiday weekend, and was accepted a few hours later by Sperry’s board. Details of the agreement were not released, but Sperry said it would disclose additional terms “promptly.”
Neither company would comment on what roles Sperry executives, in particular Chairman Gerald A. Probst and President Joseph Kroger, would have in the new company. Nor was it known what effect the merger would have on New York-based Sperry’s 67,000 employees.
News of Burroughs’ offer began rippling through Wall Street early Tuesday morning, and Sperry’s stock began moving up before acceptance of the bid was announced late in the trading session. By the end of the day, Sperry shares had gained $1.25 to close at $74.25, a new high. It was the most active issue on the New York Stock Exchange as almost 3 million shares were traded. Burroughs’ stock dropped 37 1/2 cents to close at $59.50.
Analysts, some of whom were critical when Sperry rejected the $75 a share that Burroughs had offered last week, said the price was good for both sides.
“Burroughs got away cheaper than I expected,” said Jan Lewis of Palo Alto Research Group. “But Sperry has done well for its shareholders at that price.” Sperry stock had been trading in the mid-$50 range before Burroughs expressed its renewed interest in its rival.
Together, the companies had revenue of $10.7 billion in 1985. For each of the companies, large computers, or mainframes, generate the bulk of the sales. Detroit-based Burroughs has a strong presence in the financial services market while Sperry’s major customers are government agencies and aerospace and military concerns.
According to Dataquest, a San Jose market research firm, the two companies sold almost 18% of all mainframes bought in the United States last year from domestic manufacturers. Industry leader IBM, on the other hand, captured 56.6% of the unit sales.
It is this combined market share that W. Michael Blumenthal, Burroughs’ chairman and architect of the Sperry acquisition, was after. Blumenthal wanted his company to be No. 2--and a strong enough second to IBM to be able to flex some muscle in the $6.9-billion mainframe market, industry observers have said.
“In today’s computer market, with the slowdown in growth of sales, more and more business is coming from existing customers. And for that, you’ve got to buy (installed) base,” said Donald Young, analyst with Sanford C. Bernstein in New York.
Before charging ahead of current No. 2 Digital Equipment Corp., however, Blumenthal and Burroughs face the task of melding the two companies with their far-flung staffs and disparate products. Blumenthal has said the company will not attempt to merge the Sperry and Burroughs products, which are based on two different, and incompatible, computer “architectures.”
Blumenthal said the economies of the merger, which he estimated at $150 million a year by 1987, will result not from merging product lines but in reduction of other expenses.
Persuading current Sperry customers that Burroughs will not abandon the Sperry product lines is the most important task facing Blumenthal now, Young said.
“There’s a tremendous integration job lying ahead, and it’s in Burroughs’ interest to retain the top management,” Young said. “But the No. 1 order of business is to reassure Sperry customers” that the Sperry line will not be given short shrift in the new company.
Analysts agree that for another six months or so, or until Sperry customers feel reassured, there could be a serious drop-off in sales of Sperry products. “There will be some rocky (financial) performances, particularly for the rest of 1986,” Young said.
The merger deal proceeded smoothly, in comparison with some other recent takeovers. Analysts believe that Sperry directors were resigned to the merger--even though management has been opposed--since Burroughs reinitiated a bid May 5.
In the offer accepted Tuesday, Burroughs said it would pay $76.50 a share in cash for up to 31 million shares of Sperry stock. The remaining shares would be converted into securities valued at $76.50--part in 7.5% cumulative convertible preferred stock and the rest in 9.75% subordinated debentures or long-term bonds.
