Computer Associates has stepped up its efforts to acquire Computer Sciences Corp. by sending a letter to CSC's CEO and board which threatens to go to shareholders with a less appealing offer if CSC doesn't continue negotiations immediately.
"If substantive negotiations have not started by Monday 12:00 noon EST, we will have no choice but to move ahead on a unilateral basis at a substantially lower price... which would be required to reflect the diminution in value" as a result of a "contested" bid, said the letter, dated yesterday, from CA President and Chief Operating Officer Sanjay Kumar to CSC Chairman and CEO Van Honeycutt.
In other words, if CSC refuses to negotiate, or contests CA's bid, and CA has to go directly to shareholders, the value of CSC will decline, according to the letter, which was released publicly today by CA. The full text of the letter is on CA's Web site at http://www.cai.com/csc/.
When asked if CSC had responded, CA spokesman Bob Gordon declined to comment late today except to say "We wouldn't have issued a release if they had responded."
Officials at CSC could not be reached for comment today. The office was likely closed due to the Presidents Day holiday observed in the United States.
CA made its US$9 billion bid public last week in a move interpreted as being a way to spur the management of CSC into accepting the $108 per share cash offer. But CSC instead pulled back, insinuating that CA was mounting a potential hostile takeover by making the offer public without CSC first consenting. Before the end of the week, a shareholder had filed a lawsuit, which seeks class action status, against CSC management over the CA offer and asking that a review board be appointed to consider the CA bid.
In addition to releasing its latest letter to CSC, CA also announced that it has received a financing commitment for its proposed merger from Credit Suisse First Boston which includes Bank of America National Trust & Savings Association, The Chase Manhattan Bank and NationsBank N.A.
"We have been disappointed by the response to date to the offer that we made last Tuesday to combine our two companies' businesses.... As we have expressed from the beginning, our hope and intent was to prompt a meaningful effort to move ahead on both our parts to a negotiated transaction," the letter to CSC management signed by Kumar said.
"We made it clear in our February 10th letter that we believed that we could bridge some of our differences with respect to value in a friendly transaction," the correspondence continued. A negotiated transaction will increase the value to CSC shareholders, while a "contested process" will result in a reduced value of CSC, the letter said.
"In short, we are proposing a transaction that has compelling value to your shareholders and other constituencies, especially when measured against a contested alternative," the letter said. "We hope this demonstrates our continuing efforts to consummate a friendly transaction. It is truly important to us that you and your Board are fully informed at this critical stage."
CA's decision to make its dealings with CSC public on the Web is strongly reminiscent of the way IBM Corp. handled its bid to purchase Lotus Development Corp. back in June 1995. IBM also made its letters to Lotus Chairman, President and CEO Jim Manzi concerning its intention to acquire Lotus publicly available on the Web. After an initial period of uncertainty, when it appeared that Lotus executives regarded IBM's bid as hostile, Big Blue successfully acquired Lotus for $3.5 billion. However, Manzi didn't stay with IBM long, quitting as head of Lotus in October 1995.