CSC Shuns Bid; Suitor Vows to Take Hostile Route
Computer Sciences Corp. firmly rejected an unsolicited $9.8-billion takeover bid from Computer Associates International Thursday, setting the stage for a bitter battle to control the El Segundo-based service and consulting firm.
Van Honeycutt, chairman, president and chief executive of CSC, said a merger with the Islandia, N.Y.-based software developer would be a bad strategic move for his company and could trigger the loss of valuable employees and lucrative clients. In addition, the $108-per-share formal offer--and the $114-per-share deal Computer Associates is offering for a friendly deal--both undervalue the long-term prospects for Computer Sciences, Honeycutt said.
“Our desire is to remain independent and provide value to our shareholders,” Honeycutt said in an interview.
Computer Associates responded by pledging to proceed with the hostile takeover bid it launched on Tuesday, a week after it first offered to buy the company. Computer Associates said the matter should be submitted to CSC’s shareholders for a vote and announced a slate of candidates for the board of directors that would be favorable to a merger.
*
But CSC’s next shareholders meeting is scheduled for August, and analysts said neither company can afford to wait that long for the matter to be resolved.
“The longer this stretches out, the worse it is for both parties,” said Christopher Galvin, senior technology analyst for Hambrecht & Quist in San Francisco. “The longer Computer Sciences is in play, the more its assets--namely its personnel and professional services expertise--are damaged.”
In a letter to Computer Associates Chairman and Chief Executive Charles Wang, Honeycutt said CSC’s board voted unanimously to reject the “ill-considered and unwelcome” takeover attempt.
With revenue growing at a 20.4% annual rate over the last five years, Computer Associates’ bid does not reflect CSC’s value, Honeycutt said. But several analysts called the offer fair.
Honeycutt’s letter also said more than one-quarter of CSC’s revenue for fiscal 1999 is expected to come from clients who are allowed to cancel their contracts if CSC is sold. A Computer Associates-owned CSC would lose customers who value CSC’s independence in recommending hardware and software solutions, he added.
Finally, Honeycutt told Wang that “many of the very assets you are trying to buy--our employees--will decline to join your company.”
A spokesman for Computer Associates downplayed those concerns, saying that the company intends to run CSC separately from its software business and that CSC’s relationships with its clients “would not be disrupted.”
In order to speed up its offense, Computer Associates filed documents with the Federal Trade Commission to shorten the waiting period for antitrust clearance to 15 days from 30 days. The company is also moving ahead with its efforts to persuade CSC’s major shareholders to remove a majority of CSC’s board members and replace them with a slate nominated by Computer Associates, the spokesman said.
CSC shareholders seemed to agree with analysts that Computer Associates’ offer was attractive. In New York Stock Exchange trading Thursday, shares in CSC fell $5.75 to close at $103.50, while Computer Associates’ stock rose 6 cents to end the day at $47.06.
