US market gossip that Mitsubishi Electric was shaping up to bid for Control Data Corp – and that management would seek to take the company private as a defensive move (CI No 740) – was widely reported and was good for five bucks on the share price at $34.50. But when wiser counsels prevailed, and […]
US market gossip that Mitsubishi Electric was shaping up to bid for Control Data Corp – and that management would seek to take the company private as a defensive move (CI No 740) – was widely reported and was good for five bucks on the share price at $34.50. But when wiser counsels prevailed, and the Mitsubishi rumour was recognised as belonging in the aerodynamic pigs category, the share price, instead of heading back south, held onto most of the gain, and was still up at $33 even on Monday. Control Data has suffered such a basinful of rank ill-fortune over the past three or four years that it requires a little effort to look at the company afresh and discern some very real values. Most significant plus is that the break-up or net asset value of the company is way above $33 – estimates quoted in the Wall Street Journal’s Heard on the Street column range from $40 to $60 a share. One reason is that in all its efforts at divestment, CDC failed to find a buyer at an acceptable price for some of the hottest properties it tried to sell, notably the Ticketron computerised ticketing business and the Arbitron audience measurement and ratings service. Both were on the market on and off for about two years and sale of each was thought to be imminent at different times, but the delays enabled CDC to find other solutions to its financial problems, and it was able to pull redeem those two jewels from its lofty pawnbrokers. Moreover, having floated off its Commercial Credit financial services subsidiary, it still holds a very saleable 18.3% stake in the business, and, despite its tribulations, its pension plan happens to be over-funded. That lot alone could probably justify the current share price, at which point the OEM disk drive business, the mainframe business, and the ETA Systems supercomputer business, plus sundry other computer services operations that have survived the housecleaning and asset sales, are in there for nothing. And if that were not enough to give any corporate raider itchy fingers, there is always a silver lining to even the biggest cloud of red ink. Once you get the company back into profit, the bigger the losses in previous years, the juicier the tax loss carry-forwards – usually called tax credits in Computergram – built up in the corporate treasury. Control Data has a collossal $500m or so in aggregate profits it can make before it has to pay any corporate taxes.
Having reached that point, it would appear that the only surprise is that no predator has yet shown its hand – but the majority opinion gleaned by the Journal is that despite the attractions, Control Data is likely to retain its independence. On balance, despite its apparent vulnerability to a bid, we are inclined to agree. While parts of the company are easily saleable, those that would be left – OEM disk drives, mainframes, supercomputers – are fiendishly difficult to run successfully, and could easily fall apart in the hands of a dispirited or inexperienced management. At the same time, in an age dominated not only by IBM, but increasingly by $10,000m-a-year computer companies – DEC, Unisys, Fujitsu, Bull-plus-Honeywell Bull – CDC is now so small by comparison that it would be better off with a friendly merger. NCR Corp needs to add a company the size of CDC to hold its position – and the pair have long had close associations. But the technical minicomputer and workstation world is now throwing up a wealth of potential merger partners who operate in broadly the same markets as CDC, the most obvious candidates being Data General Corp – for defensive reasons, Prime Computer Inc -for gravitas, and, a longer shot, Apollo Computer.