The Wall Street Journal Interactive Edition -- February 20, 1998

Computer Sciences' Board Rejects CA's Bid, Setting Stage for Fight



Computer Sciences Corp.'s blunt rejection of Computer Associates International Inc.'s $9.18 billion takeover bid sets the stage for a bruising multifaceted battle for control of the computer-services company. Confirming weeklong speculation, the board of the El Segundo, Calif., company unanimously rejected CA's hostile $108-a-share offer, as well as a sweetened $114-a-share bid for a friendly deal, saying they don't represent "fair value" and make no "business sense." In a strongly worded letter, Van [Go] Company B. Honeycutt, Computer Sciences' Profile: chairman, urged Charles Wang, Computer Associates chairman of CA, to "withdraw your International offer immediately and move on." Otherwise, Mr. Honeycutt said, [Go] Computer Computer Sciences "will utilize Sciences' every legal means necessary to CEO Eschews Hostile defeat your attempt and will hold Deals you and your company responsible for any damages we sustain." [Go] Bid for Computer In response, software maker CA, Sciences May Rattle which already had begun a tender Potential Clients offer to buy Computer Sciences at (Feb. 19) $108 a share, said it intends to proceed with that offer because "the decision now should be submitted to CSC shareholders in a fair referendum." Search for Allies Both companies are now expected to woo large institutional shareholders to support their respective positions. CA also hopes to persuade a judge in Nevada, where Computer Sciences is incorporated, to halt Computer Sciences' antitakeover measures -- which the services company just beefed up -- as it seeks to gain control of the board. While expected, Computer Sciences' unequivocal position that CA isn't a suitable partner and belief that there appears to be no quick end for the impasse caused concern among investors about short-term business prospects. Shares of Computer Sciences fell $5.75 to $103.50 while CA's shares rose 6.25 cents to close at $47.0625, both in New York Stock Exchange composite trading. Meanwhile, Mr. Honeycutt's recommendation that shareholders reject CA's offer without any alternative plan irked some investors. CA's $108-a-share bid represents a 17% premium to where Computer Sciences shares were trading Tuesday, the day before CA made known its intentions. 'Very Untenable Position' "This is a very untenable position given that $108-a-share is pretty fair valuation," said Duane Eatherly of Banc One Investment Advisors, which owns about 100,000 shares of Computer Sciences. "This is something they should present to shareholders and, frankly, present an alternative."

Takeover Strategy

Computer Associates' offense:

* Woo shareholders directly with $108-a-share offer

* Dangle $114-a-share as an incentive for Computer Sciences to negotiate

* Ask Nevada judge to stop Computer Sciences' antitakeover devices

* Force shareholders meeting to elect its own directors

* Try to shorten waiting period for antitrust clearance to 15 days

Computer Sciences' defense:

* Reject $108-a-share as a low-ball offer

* Dub CA as the wrong strategic partner

* Shore up "poison pill" antitakeover defenses

* Increase to 90% the shares required to change directors

* Amend bylaws to delay shareholder meeting by up to a year from now Source:

Company filings -------------------------------------------------------

- Mr. Eatherly, whose funds also owns 600,000 CA shares, said he might end up trimming Banc One's positions in both stocks as the standoff "increases risk on all fronts both for existing Computer Sciences contracts and, going forward, potential contracts." In its rejection, Computer Sciences asserted that its ability to recommend products from any company was a critical factor in its success and CA's stated goal to sell and service its products through Computer Sciences is "a prospect that our customers and employees would find unacceptable." Declined to Elaborate In a rare conference call with investors and analysts, his first in almost two years, Mr. Honeycutt declined to elaborate on strategic options for Computer Sciences. Nor would he say what offer would be appropriate. "I am not going to price our company for you," he told one questioner. But Mr. Honeycutt also appeared to backtrack somewhat on earlier assertions that CA simply isn't a good buyer because its product orientation might taint Computer Sciences' "independent" stature. He declined one analyst's offer to rule CA "unfit at any price," instead responding: "There is always a number where nothing matters." While that comment, as well as Mr. Honeycutt's assertion that "shareholders will vote" on the $108-a-share offer, appeared to indicate some potential maneuvering room for CA, Computer Sciences also disclosed in federal filings that it amended its bylaws to strengthen its takeover defenses. The company amended its shareholder-rights plan so that it creates special preferred shares when a third party acquires 10% of its common stock, potentially making an acquirer buy more shares. Severance Plan Sweetened Computer Sciences also changed its bylaws to give its directors an option to delay calling its annual shareholder meeting for almost a year. In addition, the company added 150 employees to a lucrative severance plan implemented earlier this month for the company's 17 top executives. For its part, CA, Islandia, N.Y., filed a motion in U.S. District Court in Nevada asking for a quick decision on its earlier request for an injunction preventing the implementation of any Computer Sciences antitakeover devices. CA also said it amended a federal filing to seek antitrust regulatory clearance in 15 days, as opposed to its filing last week that had a 30-day window for the Justice Department to respond. Thursday, Computer Sciences also tried to persuade observers that a successful CA bid will damage Computer Sciences' current and future customer base. "We have had enormous contacts from customers and prospects [and they are] totally negative about this," said Mr. Honeycutt. Later, a Computer Sciences spokesman declined to identify any of those customers, saying "they have a right to remain silent" in the news media. Leon Level, Computer Sciences' chief financial officer, told analysts that contracts representing over 25% of the company's expected revenue for fiscal 1999 have "change-of-control" provisions, allowing customers to opt out if anyone buys the company. Mr. Level said the contracts represent potential future revenue of more than $11 billion. Several industry observers noted that most recent outsourcing contracts have such opt-out clauses. But the complexity and long-term nature of such deals, in which Computer Sciences takes over staff, computers and sometimes even entire buildings from customers, makes it very difficult for clients to simply find another service provider, they said. Return to top of page Copyright ©1998 Dow Jones & Company, Inc. All Rights Reserved.

Dow Jones Newswires -- February 19, 1998

Computer Sciences To Issue Preferred Stock In Takeover Fight

Computer Sciences Corp.'s (CSC) attempts to protect itself from Computer Associates International's (CA) hostile takeover bid have opened the door for common stock owners to buy preferred shares. Computer Sciences filed documents with the Securities & Exchange Commission outlining a new right agreement in which "each right shall be exercisable to purchase 1/4000 of a share of Series A Junior Participating Preferred Stock, par value $1 per an exercise price of $500." This could create more shares of stock, making it more expensive for Computer Associates to acquire a majority of Computer Sciences stock. The stock offer approved by the Computer Sciences board Wednesday was among several amendments and bylaw changes adopted in an apparent attempt to strengthen the company's position against a hostile takeover bid from Computer Associates International. Board members added 150 employees to a lucrative severance plan implemented earlier this month for the company's 17 top executives. Other changes included giving the Computer Sciences board more control over the business discussed at board meetings, when board meetings are called and the replacement of ousted or retired board members. Last week, Computer Associates presented Computer Sciences with an unsolicited offer to buy the company for $108 a share, and reportedly was willing to pay as much as $114 a share if Computer Sciences agreed to be acquired. Earlier this week, Computer Associates switched gears, embarking on a hostile takeover. Computer Sciences rejected the friendly offer Thursday. The company is expected to file a response to the hostile tender offer by March 3. Computer Associates has filed a motion in U.S. District Court in Nevada asking for a quick decision on its earlier request for an injunction preventing the implementation of any Computer Sciences antitakeover devices.