After a month of verbal battles, lawsuits, and efforts to woo shareholders, Computer Associates (CA) today said it will let its $9.8 billion hostile bid for Computer Sciences (CSC) expire after March 16--unless CSC's board takes the unlikely action of removing the antitakeover hurdles it took great pains to erect.
The two companies have been trading salvos as tools and utilities software maker Computer Associates looked to beef up its operations with CSC's services business, and CSC insisted upon remaining independent. Computer Associates had offered CSC shareholders $108 per share in its cash tender offer.
CSC's shares tumbled more than 11 percent in early trading today, to as low as 93, down from a close of 105 yesterday. The stock had traded at 92-3/16 before CA's offer was announced in mid-February. Shares of Computer Associates, meanwhile, rose 6.7 percent, to as high as 50-3/4 this morning, up from yesterday's close of 47-9/16.
During the contentious dispute between the two companies, questions arose about whether CSC's government contracts would continue in light of the fact that Charles Wang, CA chairman and chief executive, and a larger CA shareholder are not U.S. nationals.
That matter ultimately may have become the deal-breaker.
In fact, Wang said today that the main reason for not continuing with the takeover were "the unlawful [antitakeover] roadblocks, mudslinging, and racial overtones--because my family immigrated from Asia years ago--I'm unwilling to let this happen," Wang said in a conference call this morning. "There is a right and wrong way to do business.... We have an industry to protect from all of this mudslinging."
CSC officials said they did not have an immediate response to Wang's charges, but would issue a statement later today.
When the battle first erupted, speculation arose that CA would increase its bid in hopes of paving the way to a smooth deal. CA had held out an offer of $114 a share, contingent on CSC's board of directors agreeing to a friendly merger. When it became apparent that there would be no friendly interaction, CA offered CSC investors $108 per share.
In a letter to CSC chairman and CEO Van Honeycutt today, Wang said that Honeycutt initially had indicated that an offer of $130 a share would be a fair value for the services company. Wang indicated in a letter he sent the next day that Honeycutt revised his figure to offer a range of between $115 and $125 a share.
But CA never increased its bid.
"We never got beyond the $115 to $125 per share [discussions]," Wang said.
Questions of a successful hostile play loomed. In the interim, CSC took steps to make a hostile takeover more difficult, such as executing a mechanism that increased the number of outstanding CSC shares, which effectively diluted CA's attempts to gain a majority stake.
"From the outset, this deal made a lot of sense," Wang said. "It would have been a dynamite combination. Honeycutt agreed that this would be good for both companies."
As time dragged on, however, Wang said that two specific issues plagued negotiations: the buyout price and Honeycutt's proposed role in what would be a merged company.
CA, for its part, has said that it will continue to extend its service offerings, even without CSC.
"We are committed to the service industry," he said. "As you know, we have a small services unit internally. We want to build on that."
CA is looking at alternative ways of providing services, along with its existing product lines. Wang said, for example, that the company may make look to make smaller acquisitions this year and next.
It also is looking to rebuild a civil relationship with CSC.
"We will be open to having a happy relationship with CSC," Wang said