Tech Industry

Computer Associates buys services firm

Computer Associates agrees to acquire Computer Management Sciences through a cash tender offer worth $435 million.

Nearly a year after its failed hostile bid to buy Computer Sciences, Computer Associates today rebounded with a $435 million deal to buy IT services firm Computer Management Sciences.

Computer Associates said it reached a merger agreement in which the $5.1 billion software giant will buy all outstanding shares of the Jacksonville, Florida-based firm's stock for $28 a share.

A cash tender offer issued over the next several days will be followed by a cash merger that has been unanimously approved by both firms' boards, CA executives said.

"I'm hoping within 30 days we'll have it all wrapped up," CA president and chief operating officer Sanjay Kumar said during a press conference held with reporters this morning. "It's by far the largest services acquisition we have done."

Through the deal, Computer Associates will fold the profitable CMSI into its rapidly growing Global Professional Services (GPS) division, which provides management outsourcing, application development and integration, and Year 2000 compliance issues, among other services.

In 1998, CMSI posted revenues of $90.2 million and profits of $12.4 million, a 34-percent jump. All of CMSI's 900-plus employees will join Computer Associates, bringing the Global Professional Services workforce to more than 3,000 employees.

"Clearly for [CMSI] shareholders there's a pretty nice premium attached to the takeover," particularly for the company's cofounders who stand to benefit most from the cash deal, said ING Barings analyst Brian Maimone. CMSI's two largest shareholders, CEO Jerry Davis and acting CEO and corporate secretary Anthony Weight, own 33 percent of the company's shares and have agreed to sell as part of the merger deal.

Since CA founded the GPS division last April, it has been busy bulking up by buying Realogic, LDA Systems, and Aventura Systems. GPS should grow organically at 50 percent over the next five years, CA executives said.

To date, Computer Management Sciences has focused on providing outsourcing and systems integration services to the mid-sized companies with typical contracts ranging from $250,000 to $10 million. The firm's clients include Coca Cola, Merrill Lynch, and Lockheed Aeronautical Systems.

The merger with CSA will provide CMSI with needed sales and marketing clout, executives said.

"This will give us the additional marketing gun powder," the company needs to win contracts against larger rivals including IBM Global, Andersen Consulting, and Cambridge Technology Partners, said Halsey Wise, president and chief operating officer of CMSI.

Through opening CSMI outsourcing centers abroad, Computer Associates aims to expand the reach of its flagship systems management product, Unicenter TNG, that competes with IBM's Tivoli, across Europe and internationally.

"CA is definitely pursuing a dual path here," Bill Martorelli, analyst at the Hurwitz Group. "They're looking to strengthen themselves on the management side, but they're also building a general purpose services capability that's independent. Here, they've acquired a fairly broad capability in terms of geographic coverage as well as potential services capability."

Last year, CA tried to bulk up its IT services offerings by initiating a $9 billion high-profile bid for Computer Sciences. That takeover attempt failed last March, leaving CA to search for another suitor to boost the clout of its new professional services organization.

"When that didn't work out we tried Plan B," Kumar said, which meant building a services arm internally and acquiring smaller companies to boost its growth.

The failed CSC deal is now "ancient history," Martorelli said.