New York Firm Makes Hostile Bid for CSC
An impatient Computer Associates International Inc. on Tuesday launched a $9.8-billion hostile bid for Computer Sciences Corp. after being forced to wait nearly a week for a reply to its friendly offer to buy the company.
The hostile offer of $108 per share is equal to the friendly offer Computer Associates made last Wednesday. Over the weekend, the Islandia, N.Y.-based suitor, a software developer, tried to entice El Segundo-based Computer Sciences to agree to a merger by offering as much as $114 a share, said a person following the deal closely.
Computer Sciences’ board of directors will meet this week and respond to the hostile offer on Thursday or Friday, said Bruce Plowman, the company’s vice president of corporate communications.
“We’re reviewing all of our options and all of the ramifications of their offer, and that takes time,” he said. “When we respond, it will be a very thorough response.”
Analysts said the hostile bid all but ensures that Computer Sciences will be bought by either Computer Associates or another suitor in the next two to three weeks. A prolonged bidding war for Computer Sciences could backfire if uncertainty about the company prompts its customers--and especially its highly valued employees--to jump ship.
“The assets are really the people, and they can leave,” said Moshe Katri, an analyst who follows the computer-services industry for UBS in New York. “This is a risky situation and [Computer Associates] is going to want for this thing to end really quickly.”
Although Computer Associates is eager to close a deal, Computer Sciences’ management team no doubt wants to stall while it talks with potential bidders that might pay more, analysts said. Possible contenders include IBM, Electronic Data Systems, Lockheed Martin, AT&T; and Hewlett-Packard, analysts said.
“What the hostile bid says to me is that Computer Associates is very serious about getting into the services business,” said Melissa Eisenstat, an analyst with CIBC Oppenheimer in New York.
IBM might be persuaded to bid for Computer Sciences because the Armonk, N.Y., firm’s profitable computer-services business is booming and IBM could easily put Computer Sciences’ 40,000 consultants to work, Katri said. Defense behemoth Lockheed Martin could mesh Computer Sciences with its information technology division and buy a seasoned management team that could spin off the division in the next year or two, he added.
Officials from IBM, Lockheed Martin, AT&T;, EDS and Hewlett-Packard said they could not comment on possible mergers and acquisitions.
Robert Johnson, an analyst with ABN AMRO in Chicago, said Computer Sciences could have a difficult time persuading another company to spend $10 billion on an acquisition, especially on such short notice. In addition to the expense, a takeover would dilute the acquiring company’s earnings and incur a substantial tax bill, he said.
Also, some of the potential buyers might receive a competitive boost from a Computer Associates-Computer Sciences combination, Johnson said. The resulting uncertainty might make it easier for Computer Sciences’ competitors to “poach all their consultants and clients,” he said.
Computer Associates’ hostile bid includes $108 in cash for each of Computer Sciences’ outstanding shares of common stock, plus the assumption of about $700 million in debt. Computer Associates is willing to pay more per share if Computer Sciences agrees to a friendly deal, said a person who is following the situation closely.
Computer Associates’ shares dropped $2.31 to close at $46.06, and Computer Sciences shares lost 81 cents to close at $106.56, both on the New York Stock Exchange.
