AT&T Co seems so determined to bolster its fortunes in the computer industry by acquiring NCR Corp that it is likely to succeed in its quest – but a $90 a share share exchange offer, even if nominally worth $6,000m, does not look nearly attractive enough to gain an easy passage. Of the remaining multi-billion […]
AT&T Co seems so determined to bolster its fortunes in the computer industry by acquiring NCR Corp that it is likely to succeed in its quest – but a $90 a share share exchange offer, even if nominally worth $6,000m, does not look nearly attractive enough to gain an easy passage. Of the remaining multi-billion dollar computer companies that could be a target for a predator, NCR, DEC and Hewlett-Packard Co, NCR is currently the cleanest and the most desirable: not only does it have the farthest advanced – and already successful – open systems strategy, but it has a privileged position at the sharp end in both the banking and retail worlds. Moreover its NCR-Comten subsidiary is about the only really serious competitor to IBM itself in the SNA communications processor business – and open systems support is further advanced on the Comten machines than it is on IBM’s own 3745. All those aspects make NCR peculiarly attractive for a telephone and telecommunications equipment company that still believes in the convergence between computers and telecommunications. Moreover DEC and Hewlett-Packard would both be messy acquisitions for AT&T, since both are in the Open Software Foundation, whereas NCR votes the AT&T ticket on Unix. All that being said, the $90 a share all paper offer looks extremely mean, representing only one year’s sales, in shares that have performed indifferently ever since the break-up of the Bell system. NCR holders can count on selling their AT&T shares as soon as they receive them, but so many would be likely to want to that the price would be driven sharply down. Moreover NCR directors can argue that the company is in the midst of a comprehensive long-term strategy the benefits of which should start showing through in the next couple of years: on that basis, the AT&T bid could be regarded as opportunistic in the extreme, being made to take advantage of short-term weakness in a company that is due a substantial re-rating. All that suggests that to get a recommendation from NCR’s board, AT&T may well have to raise its offer considerably, and, crucially, include a significant cash element.
And as the NCR board points out, if AT&T, as it says it does, wants existing management to continue in place and run the enlarged $7,500m-a-year computer company from NCR’s present base in Dayton, it does need to get the whole-hearted support of the company – something it clearly does not at present have. In contrast to software and service businesses, where a threat by managers and employees to walk if a hostile bid succeeds is usually enough to send a predator away with its tail between its legs, it is usually assumed by bidders that anyone can run a manufacturing company – but in this case that is not true: AT&T clearly doesn’t know how to run a computer company and it will simply be throwing its shareholders’ money away if it drives out incumbent NCR management. Is there likely to be a counter-bid? NCR is unlikely to find the idea of a combination with AT&T so repugnant that it goes looking for a white knight, and in the present climate, the only buyers for computer companies are Japanese. No Japanese company is going to enter a hostile bidding war with AT&T for NCR, and even if NCR were to reach agreement with a Japanese – or European – company, political pressure would ensure that AT&T won the day. The three US computer companies with the resources to acquire NCR are members of the Open Software Foundation, which would greatly devalue any acquisition of NCR. The only other US companies with the resources to acquire NCR that might at other times have been interested are companies like Ford Motor Co, General Electric Co and Westinghouse Electric Corp, and none is likely to be interested in embarking on what would be a risky acquisition in the present climate. The approach that would produce the best outcome in terms of NCR’s likely future success would be for AT&T to inject its computer business and enough cash into NCR to justify it taking a 30% to 40% stake in the enlarged company and allow NCR to retain
its independence, but that would not do a lot for NCR’s shareholders in the short term, and after AT&T’s experience with Ing C Olivetti & Co SpA, it is unlikely to want to risk a similar experience again.