Computer Sciences (CSC) CEO Van Honeycutt mounted what was described as 'a textbook defence' to the hostile takeover bid by Computer Associates (CA). It was reported that both the market and CA 'underestimated the tenacity and street-fighter skills' of the opponent. But while some elements of the market and a number of experienced observers reacted with surprise to the move by CA last week when it decided to throw in the towel, others were less shocked by the course of events.
Speaking to PC Dealer when the bid was first announced, independent analyst and computer services expert, Richard Holway, explained that while the deal made a lot of sense in theory, in practice it was doomed to failure.
But Holway and fellow analysts had been predicting for months that CSC would attract suitors during 1998. They also said CA was crying out for an established services business to integrate with its own operation.
So why was he so sure of the failure of this particular combination?
Holway explained that the very nature of the bid - the fact that it was ostensibly hostile and unsolicited - was in itself enough to deny CA victory.
Even though CA has undertaken more than 60 acquisitions since 1976 this was, the first time it had launched a hostile takeover.
As Charles Wang, chief executive officer of CA, pointed out, a hostile bid is only hostile if the bidder's offer price is too low. In all previous deals which had produced resistance, CA had successfully pushed the purchase through by paying shareholders a significant premium on the market value.
Wang stuck to this strategy when he went after CSC, indicating that he was prepared to pay up to z114 per share, 24 per cent more than the pre-bid value. He even went to the unusual lengths of guaranteeing that no redundancies would occur as a result of the takeover, allaying fears that the people-based company would be stripped of its most valuable resource.
But now he admits he misjudged the situation: 'We received confusing signals from Van (Honeycutt, CSC chief executive). The way I read these signals it was simply a question of price. But obviously I read it wrongly.
Ultimately, as you have seen, Computer Sciences never came to the table.'
Instead, CSC doggedly thwarted Wang's every move, accusing him of 'violating federal securities laws, misappropriating trade secrets' and even 'bribery'. In response, Wang accused CSC of 'unlawful roadblocks, mud-slinging and racist tactics'.
CA appears to have decided the deal - which could have cost as much as $9.8 billion - was more trouble than it was worth. Perhaps Wang realised that even if he had successfully pushed the deal through, the combined result may not have proved as effective as he had first hoped.
And this is the point the analysts have been plugging all along. A service company's primary asset is its independence - once it loses this the value of the whole organisation is undermined.
While Wang continued to hold that CSC and CA would make a 'dynamite combination' and insisted they could service longterm clients from a position of independence, all the signs suggest that this was not really the case.
Once Wang realised a combined CA/CSC could lose up to 25 per cent of its biggest customers and perhaps face ongoing Microsoft-style anticompetition investigations, it seems he was less prepared to undertake the biggest acquistion in the history of the industry.
If the takeover was doomed to failure, a successful bid could have proved even more costly.
So now what? CA says it is still committed to moving into the services sector. 'We are going to look at other acquisitions.' Holway said there is no shortage of medium-range companies which would be happy to receive a financial boost from CA. It is unlikely that Wang will be damaged by the previous month's activities. In fact, he is probably grateful for the publicity.
Computer Sciences, on the other hand, may feel less content. Even though it has won the nominal victory, the services company is now in even greater need of a white knight.
Holway said: 'In trying to persuade the market of its growth potential, CSC has given quite ambitious forecasts for the next financial year. Without the initial bid it would not have been forced into this hole. I expect CSC will have difficulty meeting this kind of earning growth. If I were director of CSC, I would still be looking for a company to take me over before I had to come up with the goods.'
Unfortunately for CSC, most of the big candidates have already said they are not interested. And if the services company does fail to come up with the goods over the next year, it will find itself worth far less than the $114 per share Wang was prepared to pay last week.
Nima Green asks what is driving public cloud uptake in Germany
In the wake of yet another lawsuit involving Oracle, we run through 10 of the vendor's biggest court battles
CEO Chuck Robbins says Cisco will use the Catalyst 9000 product range as a template for future launches
Today saw 14 of the UK IT channel's biggest hitters come together to determine the winners of CRN's WiC awards. But what does being a WiC judge actually involve? Doug Woodburn reports