CSC?s board of directors voted unanimously to reject an unsolicited, friendly acquisition offer from CA, contained in a letter dated February 10. In that letter, CA said that it would offer $114 per share for CSC?s outstanding shares, according to CSC.
CA, which is offering CSC shareholders $108 a share to tender their stock, wants to have at least 51 percent of CSC's shares tendered by March 16. It may withdraw its offer at that point, but warned that the deadline could be extended.
In a letter sent to CA?s chairman, Charles Wang, CSC chairman and CEO Van Honeycutt said, "We believe that CSC has far greater near- and long-term prospects than are reflected in your bid. Based on our assessment of CSC's opportunities for growth in revenues and earnings per share, and the potential such growth has to effect significant appreciation in our stock price, we do not believe your offer rewards our shareholders for the true value of their investment."
Honeycutt also warned that CSC has moved to strengthen its protections against CA's attempt to force an acquisition by threatening damage to the value of CSC, which has said that it would use every legal means necessary to defeat that attempt.
He added that a merger with CA would not make business sense because it would result in a lower credit rating for the combined company, compromise CSC's "platform neutrality," and trigger the departure of key CSC employees.
CSC said a reduced rating would hurt its ability to secure larger, long-term outsourcing contracts. Customers signing up for large service contracts often look to a credit rating to ensure the likelihood is great that the company is financially strong enough to perform the job.
In turning down the earlier bid of $114 a share, CSC said its customers and employees would find CA's plans to "redirect" CSC employees to sales and service of CA's products unacceptable. The company noted that such a plan by CA would hurt its credibility and its neutrality in making product recommendations.
More than 25 percent of CSC's revenues in fiscal 1999 are expected to come from outsourcing deals that contain a provision allowing customers to terminate the contract if a new company takes over.
"We have already been notified by a number of such clients that they will either exercise such provisions or curtail or reduce the flow of new business to CSC should a CA takeover occur," Honeycutt said. "In addition, software critical to CSC's data centers and other operations is licensed to CSC under contracts which are terminable by the licenser if CA acquires CSC."
CSC plans to file paperwork today with the SEC disclosing specific measures approved by its board of directors to fight the takeover attempt.