Will This Marriage Succeed? : Analysts Advise AT&T; to Leave NCR’s Management Alone
Mergers between large technology companies have failed miserably over the years, and Ma Bell herself has performed poorly in the computer business. So does the $7.4-billion merger of American Telephone & Telegraph and NCR Corp. announced Monday have a prayer of succeeding?
If there is a chance--and there is no unanimity on that point--analysts say it will only be if AT&T; keeps its hands off NCR and allows the computer company’s managers to operate autonomously, far outside the sometimes stifling bureaucracy of the century-old telephone company.
“NCR has a good management team. That’s one of the reasons AT&T; wanted NCR,” said William Redmond, a technology analyst at the Gartner Group in Stamford, Conn. “The biggest thing AT&T; can do wrong is to put heavy-handed management in there.”
Added Ulrich Weil, a Washington technology analyst: “It could be disastrous if AT&T; tries to impose its will and culture on NCR. AT&T; is much more bureaucratic, and they’ve already proven that they don’t know how to succeed in the computer business.”
AT&T; has been in the computer business since 1984, when the break-up of the Bell System freed it to enter that fast-growing field. Despite high hopes that it would soon rival IBM’s computer operations, most analysts agree that AT&T;’s efforts have been a disaster.
Total losses to date are estimated to be at least $2 billion, and the operation--which analysts estimate generates sales of between $1 billion and $1.2 billion per year--is said to still be losing about $200 million annually.
AT&T; officials said they have every intention of letting NCR take over the phone company’s sagging computer operations and integrate them into NCR’s own business. And then, stressed AT&T; Chairman Robert E. Allen, NCR management will be left to run the show from its headquarters in Dayton, Ohio.
“My assurances during the negotiations that NCR would remain intact were not just campaign rhetoric,” Allen said Monday. “We intend that NCR’s corporate structure, executive leadership and, of course, its name will remain as NCR takes its place as the core of AT&T;’s computing business.”
To underscore his commitment, Allen said Gilbert P. Williamson, NCR’s president since 1988, will become chief executive of NCR upon the retirement of chairman and chief executive Charles E. Exley Jr. later this year. Exley, who has agreed to lead a transition team with AT&T; Computer Systems President Richard A. McGinn, said he will retire from NCR following conclusion of the merger.
Williamson, who will report directly to Allen, also will become a director of AT&T; and a member of its management executive committee. Elton White, currently NCR executive vice president, will become president of NCR, succeeding Williamson.
“The big question is what does NCR do for AT&T; over the next decade,” said Frank Governalli, a telecommunications analyst at the investment firm of First Boston. “AT&T; wants to be a player in the combination of computers and communication. And it wants to boost its long-distance business. That’s the goal. They didn’t spend $7.4 billion to fix the problem of losing $200 million in computers every year.”
Even with NCR’s strong leaders still at the helm, several analysts said AT&T;’s computer business faces an uphill struggle.
Initially, the merged company must satisfy current owners of AT&T; and NCR computers that parts and technical support will still be available for those models. Then, to maintain momentum while a new merger strategy is fashioned, the company must also continue to sell those models to their traditional customers.
Some analysts speculate that one of NCR management’s first acts will be to drop some or possibly all of AT&T;’s product line. The most likely victim is AT&T;’s 3-B line of mid-range business computers, an aging product family that has not lived up to its early promise.
Governalli expects AT&T; to take an $800-million charge against earnings this year for its computer operations. And there could be a second write-off in 1992, he said.
Meanwhile, analysts said, Williamson and his staff must begin to fashion a united strategy. The purchase, analysts note, may dilute AT&T; shareholder value by 5% to 10%.
“If the merger doesn’t bring added growth, then the dilution caused by the merger will be permanent,” said Craig Ellis, a telecommunications with C. J. Lawrence in New York. “I think the problems at AT&T; are deep enough that it will be tough to realize what AT&T; expects.”
Some analysts believe that the merger won’t face the traditional pitfalls that have snagged other high-technology combinations, such as the merger of Sperry and Burroughs into Unisys, Hewlett-Packard’s purchase of Apollo and IBM’s acquisition of Rolm.
According to Governalli, this deal should be viewed as an acquisition, not a merger of equal companies. And he notes that it differs from other deals because the company being acquired will manage the computer operation.
But, asked Richard Shaffer, a New York technology analyst: “Can you execute a vision that isn’t yours? This is AT&T;’s vision for what the future should hold, not NCR’s.”
* MAIN STORY: A1
How NCR Stock Fared The chart details how NCR Corp. stock reacted from the time American Telephone & Telegraph Co. made its initial bid and the time NCR Corp. accepted it.
Dec. 2, 1990 -- AT&T; offers to buy NCR Corp. for $90 a share, or about $6.1 billion, in AT&T; stock.
Jan.16,1991 -- AT&T; says that 70% of NCR’s stockholders had offered to sell their shares for $90 apiece and that it won enough support to call a special meeting of NCR shareholders.
March 28 -- NCR shareholders vote to replace four NCR board members with AT&T;’s nominees but not to oust the entire board.
April 21 -- AT&T; agrees to raise its offer to $110 a share, or about $7.4 billion, in AT&T; stock.
May 6 -- AT&T; and NCR announce they have struck a deal.
