CA buys Platinum in $3.5 billion deal
Software maker Computer Associates looks to boost its technology and services lineup by acquiring Platinum Technology in a deal valued at more than $3.5 billion.
Shares of CA dipped 2.51 percent or 0.88 points to 33.94 on the news of the merger. Platinum stock, however, surged 41.77 percent or 4.13 points, to 14. CA has traded as high as 61.94 and as low as 26 during the past 52 weeks. Platinum has hit a high of 34.31 and a low of 9 during the same period.
"This transaction provides tremendous synergies in products, markets, and services with very little overlap, creating exciting growth opportunities for CA in many new and emerging markets," CA president and COO Sanjay Kumar said in a statement.
The merger has been unanimously approved by the boards of directors of both Platinum and CA. CA said it plans to fund the acquisition through a $4.5 billion credit facility underwritten by Credit Suisse First Boston.
The cash tender offer calls for a wholly-owned subsidiary of CA to buy all outstanding shares of Platinum common stock for 29.25 per share.
Kumar added that Platinum's involvement in knowledge management, data warehousing, database tools, and application development complements the e-commerce management and development technologies embodied in Jasmine, CA's object-oriented database.
"By enabling organizations to easily create knowledge portals, CA will become the premier end-to-end solutions provider for building and deploying enterprise applications," Kumar said.
Analysts said today's acquisition helps CA round out its product line with Platinum's database tools and data warehousing and application lifecycle software.
"It's a positive acquisition," said analyst Sterling Auty, of J.P. Morgan Securities, in New York. "Here you have two staunch competitors in systems management who have complementary products within their portfolios. This solidifies CA as the leading system management vendor and gives them access to several markets they did not have a presence in."
Analyst Paul Rodriguez, of C.E. Unterberg, Towbin, agreed, saying CA has good system management tools for businesses to manage their mainframe and client/server systems, but its technology for application management was lacking.
"Companies are realizing that their customers want to do with just a couple of vendors and they're realizing that to continue to reach financial objectives, they need to have a lot of products," he said. "There's a shift in this industry toward clients wanting to buy tools to manage their applications. CA wasn't as prominent in that space as they wanted to be. And this deal improves their product breadth."
Analysts had differing opinions on whether today's deal satisfies CA's goal of improving its services business. The company had failed in its attempt to buy services giant Computer Sciences last year. CA will now add 1,000 services staff from Platinum to its existing workforce of 3,000 in its professional services organization.
"For the near term, this fits their need. But from an overall solutions standpoint, there's always the possibility that opportunities arise for CA to strengthen different areas in their professional services," Sterling said.
But Rodriguez said CA will probably continue to look for companies to buy. "Platinum adds to their services organization, but CA wants to be a billion-dollar services organization. They will continue to be acquisition minded," he said.
CA and Platinum executives called today's purchase the largest transaction ever in the software industry. Kumar expects CA will earn an extra 25 cents per share in the next 12 months and an additional $450 million in cash flow because of the deal.
Kumar said executives from CA and Platinum will work to integrate the two companies and said layoffs are likely. Some people will have to be "made redundant," but the company will try to minimize layoffs, he said.
Platinum, which currently has more than 5,000 employees, recently laid off 1,000 workers in a reorganization in February. The company's professional services organization had not met its revenue targets during the last several quarters, analysts said, so it consolidated five divisions into two core areas: Enterprise Management and Application Lifecycle & Knowledge Management.
The two companies--who competed with each other in systems management software--started talking to each Monday when CA's Kumar called Platinum's Fillipowski.
"We were adamant for not being for sale," Fillipowski said. "When we met last Monday night, it was a good meeting of the minds. There was a compelling argument why this was good for everybody."
Today's purchase price of 29.25 tripled Platinum's Friday's close price of 9.87. "It's obviously fabulous for Platinum shareholders," said Sterling, the J.P. Morgan Securities analyst. "In the face of the reorganization in February, Platinum was looking at at least another one or two quarters for the transition to take place, which would not have helped the stock price."
Platinum provides software products and consulting services to 10,000 companies to manage and improve their IT infrastructures--including systems and database management, e-commerce, and Y2K reengineering.
The 12-year-old company has more than 120 offices across six continents.
"As we approach the new millennium, it is increasingly apparent that consolidations in our industry make it evident that this change is critical to Platinum's future," said Platinum chief executive Andrew Filipowski.
The companies said they hope that the combination of their technology, operational skills, and market reach together can help create the model software and services company for the coming years.
Approval of the deal is still subject to regulatory approval.