AT&T; Offers $6 Billion for Computer Firm
AT&T;, the telecommunications giant that has stumbled in its attempts to become a computer industry powerhouse, disclosed Sunday that it has offered $6 billion for NCR Corp., the nation’s fifth-largest computer maker.
If concluded, the deal would be the largest-ever computer industry takeover, and the second-largest buyout of 1990 after the $6.13-billion agreement to merge MCA and Matsushita Electric Industrial Co.
However, the outcome of AT&T;'s bid for NCR is far from certain, and early signs indicate that the deal could become messy.
Although AT&T; stressed that it wants a friendly takeover, it said that, if it cannot reach agreement through negotiation with NCR’s directors, it is willing to take the matter directly to the company’s shareholders. AT&T; said its offer, which would give NCR shareholders $90 worth of AT&T; stock for each of their NCR shares, would expire Wednesday. An AT&T; spokesman said the company will decide then how to proceed and whether a hostile bid is necessary.
NCR officials said late Sunday that they will review the latest proposal, but appeared unimpressed and disappointed with AT&T;'s $90-a-share offer. At the same time NCR acknowledged that its board has already rejected an $85-per-share offer as “grossly inadequate” and without “business logic.” Earlier, AT&T; officials said discussions between the two companies, which began in earnest about two weeks ago, have broken down.
Hostile takeovers in technology are exceedingly rare because so much of the value of these companies rests with their employees, who are considered unlikely to give their best to an unwelcome suitor.
NCR underscored this point in its statement Sunday by noting that AT&T; could not hope to combine the computer operations of the two companies under NCR’s current management and name without the “support and confidence of NCR management.”
And even friendly technology takeovers have not fared well, especially among large companies. Burroughs Corp.'s $4.8-billion purchase of Sperry Univac in 1986--still the largest technology takeover on record--has been repeatedly questioned, as the surviving company, Unisys, continues to slip and suffer huge losses.
AT&T; freely acknowledged Sunday that it wants NCR in order to bolster its small and unprofitable presence in the computer industry, a business the giant phone company, newly divested of its regional telephone companies and free to enter the computer business, jumped into in 1984 amid high expections that it would soon rival IBM and other computer titans.
However, it never happened that way.
In the last seven years, AT&T; has repeatedly fumbled in its attempts to successfully create and sell a unified computer product line. And analysts estimate that AT&T;'s computer losses run well into the billions.
Analysts said NCR, whose sales this year are expected to exceed $6 billion, would give AT&T; some much needed market presence in Europe and Asia and about double the phone company’s computer sales in the United States, where it does virtually all of its business.
Further, analysts have noted that NCR, an old company whose original product line consisted of cash registers, has a strong business selling computers and electronic networks and terminals to financial institutions and retail operations.
“That’s what they’d be buying,” said John B. Jones, an analyst at Montgomery Securities in San Francisco. “AT&T; could spend 10 years developing a European sales structure and still not get what NCR already has there.”
NCR is widely credited for transforming itself from an old-line, low technology business into a state-of-the-art technology operation whose business is based on some of the most promising new trends--namely computer networking and “open” software standards.
AT&T;'s computer business, about half the size of NCR’s, is built on those same trends, and analysts say a merger could produce a well-fitting operation that would be one of the world’s 10 largest computer makers, with the backing of the world’s second-largest telephone company.
Still, it remains unclear how the deal will sort out.
On Friday, NCR informed AT&T; that it is “prepared to enter into private discussions” on a possible merger, according to a statement from the phone company. But then talks broke down, AT&T; said.
“Although AT&T; said it is willing to negotiate all aspects of its proposal, including price, NCR has since repeatedly refused to meet with either AT&T; or its advisers,” AT&T; said.
AT&T; released a letter dated Friday from Charles E. Exley Jr., NCR’s chairman, to Robert E. Allen, AT&T;'s chairman. In it, Exley said his company’s directors rejected AT&T;'s bid of $85 per share because it felt it was too low, and out of concern over “the strategic and business logic” of a merger.
Exley said in the letter that NCR would reconsider an AT&T; offer if it was increased. He did not say what price would be acceptable.
AT&T; AND NCR
Terms of the proposed $6-billion takeover:
--Each share of NCR stock would be exchanged for $90 worth of AT&T; stock. On the New York Stock Exchange Friday, AT&T; shares were unchanged at $32.125. NCR closed up $2 a share at $56.75.
--AT&T;'s computer line would be combined with NCR’s, and NCR would continue to operate under its own name from its Dayton, Ohio, headquarters, AT&T; said. AT&T; said it did not expect to close any NCR facilities.
--American Telephone & Telegraph Co., the nation’s largest telephone company, also makes business and personal computers and software.
--1989 earnings: $2.7 billion on overall revenue of $36 billion.
Background and outlook:
--AT&T; entered the computer business six years ago after the breakup of the old Bell System, but never became a major computer maker. Even so, the company has increased its presence in computers through acquisitions and strategic alliances.
--AT&T; said NCR would help in selling computers and other equipment for commercial users, where NCR is strong.
--Formerly National Cash Register, it is a leading maker of computers, as well as automated banking machines and cash registers.
--1989 earnings: $412 million on overall revenue of $5.96 billion.
Background and outlook:
--NCR this fall announced a strategic change in its computer line in which it will replace its proprietary machines with so-called open systems, which adhere to computer industry standards and can work easily with models made by other companies.
--The move was the most dramatic so far among old-line computer companies to deal with the move toward open systems.