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Learning Co. to Be Bought by SoftKey for $606 Million : Computers: Friendly suitor Broderbund is outbid. Deal would make SoftKey largest educational software company.

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TIMES STAFF WRITER

Ending an often-nasty five-week takeover battle, SoftKey International Inc. on Thursday overcame rival Broderbund Software Inc. and reached an agreement to acquire educational software maker Learning Co. for $606 million.

SoftKey’s successful bid, combined with its earlier acquisition of Minnesota Educational Computing, makes it the largest company in the fast-growing educational software market. Learning Co. had entered a friendly merger agreement with Broderbund last month, but SoftKey made a higher offer and then clinched the deal with a sweetened all-cash bid last week.

Talks between the two sides began Wednesday and quickly resulted in a deal--despite fears that SoftKey, unlike Broderbund, would drastically cut jobs at the Fremont, Calif.-based company.

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“It’s the job of the board of directors to do what’s in the best interests of the shareholders,” Learning Co. Chief Executive William Dinsmore said. “It became clear that SoftKey had the superior offer.” Indeed, for Learning Co. shareholders the deal is a big win: As recently as the end of last year, the company’s stock was trading at $24.50.

Broderbund, which upped its initial offer once, said it would not make a new offer for Learning Co.

In Nasdaq trading Thursday, Learning Co. gained $3.875 to $67.125, and SoftKey added $1.875 to $31.125; Broderbund fell $1 to $58.

Although it is paying a premium for Learning Co.--the purchase price is 63 times the company’s profits for its most recent fiscal year--SoftKey believes it can make the investment pay off quickly by slashing prices and expanding the market for Learning Co. products such as its Reader Rabbit series.

SoftKey believes that much consumer software is overpriced and therefore cannot reach a broad market. It’s a philosophy that clashes with the artistic sensibilities of many in the multimedia software business--but is nonetheless likely to become increasingly influential in the volatile software world.

In addition to acquiring Learning Co. and Minnesota Educational Computing, Cambridge, Mass.-based SoftKey is spending $106.5 million to buy Tribune Co.’s Compton’s NewMedia Inc. and Compton’s Learning Co. In return, Tribune Co. is investing $150 million in SoftKey, becoming its biggest shareholder. SoftKey has grown rapidly through acquisitions, often buying weak companies on the cheap and sharply cutting overhead and prices.

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But SoftKey President Kevin O’Leary said Learning Co. will be treated differently from many of the companies it purchased previously.

“We have believed that the Learning Co. has marketing and brand-management that is superior to SoftKey’s. We want to bring that to our company. That’s what’s different this time around.

“And although we want to do lower-priced versions of Learning Co. software, we will leave it to their programmers and product managers to decide what these products will look like,” he said.

No decisions have yet been made on layoffs or other cutbacks. “We don’t intend to make any quick changes,” O’Leary said. “Right now there is an opportunity for every one of those employees.” Dinsmore said he will consider staying on.

But analysts said SoftKey may have trouble retaining key software developers, which could make it more difficult for it to make its big investment pay off.

“The challenge will be integrating those two companies without losing key personnel and without falling behind on the development front,” said Michael Wallace, an analyst with UBS Securities. Converting Learning Co. employee stock options into SoftKey options may help keep key staff members from leaving, he said.

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“They’ve done a lot of small acquisitions in the past and they’ve been very successful at it, but now they’re taking on two large companies at the same time,” Wallace said.

SoftKey’s victory is a significant setback for Novato, Calif.-based Broderbund, which many analysts believe must either buy or be bought to survive in an increasingly competitive industry. The company, which makes well-known titles such as “Where in the World Is Carmen Sandiego?” and “Print Shop,” had been scheduled to merge with entertainment software vendor Electronic Arts last year, but that deal collapsed.

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Reuters news service contributed to this report.

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